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Author: 


Rosenkampff,  Arthur 
Henry 

Title: 

Bookkeeping,  theory  and 

practice 

Place: 

New  York 

Date: 

1920 


MASTER   NEGATIVE   # 


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ORIGINAL  MATERIAL  AS  FILMED  -    EXISTING  BIBLIOGRAPHIC  RECORD 


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R722 


Rosenkampff,  Arthur  Henry,  1884- 

Bookkeeping,  theory  and  practice,  by  Arthur  H.  Eosen- 
kampff  ...  New  York,  The  New  York  university  press, 
1920. 

xi,  230  p,  forms.  23i"".  (Half -title:  New  York  university.  School  of 
commerce,  accounts,  and  finance.    Accounting  series) 


1.  Bookkeeping. 

Library  of  Congress 
Copy  2. 


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NEW    YORK    UNIVERSITY 
SCHOOL    OF    COMMERCE,  ACCOUNTS,    AND    FINANCE 

ACCOUNTING     SERIES 


BOOKKEEPING,  THEORY  AND  PRACTICE 


I 


BOOKKEEPING 

THEORY  AND  PRACTICE 


By 
ARTHUR    H.    ROSENKAMPFF,    B.C.S. 

Profettor  of  Accounting 

and 

Associate  Head  of  the  Department  of  Accounting  Instruction 

in  the 

School  of  Commerce^  Accounts^  and  Finance 

Ne%u    York   University 


THE  NEW  YORK  UNIVERSITY  PRESS 

32  Waverly  Place,  New  York  City 

1920 


Copyright,  1919,  1920 
By  the  New  York  University  Press 


-fi^^.  Crip  . 


1 1    VI 


* 
I. 


3M 


THE     NEW     YORK     UNIVERSITY     PRESS 

COMMITTXS   OF  PUBLICATIOK 

Abthub  HuNTrNGTON  Nason,   Ph.D.,  Chairman 
Director   of  the  Press 

Easlb   Bbownill   Babcock,   Ph.D. 

Habold  Dickinson  Senior,  M.B.,  Sc.D.,  F.R.C.S. 


PREFACE 

THIS  text  contains  the  material  used  in  the  course  in 
Bookkeeping  in  the  School  of  Commerce,  Accounts 
and  Finance,  New  York  University. 
The  aim  of  the  course  in  Bookkeeping  is  two  fold:  (i)  to 
prepare  students  who  have  no  knowledge  of  the  subject  of 
bookkeeping,  for  entrance  into  the  classes  in  accounting-  (2)  to 
prepare  those  who  have  a  knowledge  of  the  subject  but  who 
have  failed  m  the  entrance  examination. 

The  course  covers  fifteen  periods  of  two  hours  each  and 
consists  of  laboratory  practice  by  the  student  under  the  guidance 
of  the  instructor.  The  practical  work  is  interspersed  with  such 
theory  as  is  necessary  to  make  the  work  clear  and  understand- 
able  As  much  of  the  mechanical  work  as  is  possible  is  done 
by  the  student  outside  of  the  class  room. 

On  account  of  the  short  duration  of  the  course,  the  theory 
of  accounts  can  be  discussed  only  to  a  limited  extent  There- 
fore the  theory  notes  in  this  text  are  not  intended  to  be  ex- 
haustive but  rather  indicative  of  the  extent  to  which  the  subject 
matter  is  discussed.  ^ 

In  addition  to  the  transactions  common  in  every  trading  busi- 
ness, the  author  has  endeavored  to  embody  such  transactions 
as  occur  more  or  less  infrequently  and  which  usually  confuse 
the  average  bookkeeper. 

The  author  takes  this  opportunity  of  thanking  Professor 
Edward  J.  K,lduff  of  New  York  University  for  reading  the 

TrT^^  ^f  "f^^  ""^"y  ^^'"^•'■^  suggestions;  Professor 
John  T.  Madden,  for  assistance  in  the  reading  of  the  proof;  and 
Professor  Arthur  H.  Nason,  Director  of  the  New  York  Uni- 
versity Press,  for  critical  oversight  of  puWication. 


New  York,  August,  1919, 
and  July,  1920. 


Arthur  H.  Rosbnkampff. 


THl  KIHNXBXC  JOUBNAL    COMPAKT 
ArorSTA,  HAJITB 


TABLE  OF  CONTENTS 


PART  I:  LECTURE  NOTES 

LECTURE  I 

Introductory:     Bookkeeping  defined,  3. 

The  Ledger  Account:  Account  defined,  3.— Account  in  state- 
ment form,  4. — Account  in  account  form,  4.— Ledger  account  in 
standard  form,  5. 

Theory  of  Debit  and  Credit  as  Applied  to  Personal  Accounts: 
Personal  accounts  defined,  6.— Debtor  defined,  6.— Debiting  cus- 
tomers' accounts,  6.— Creditor  defined,  6. — Crediting  creditors' 
accounts,  6.— Crediting  customers'  accounts,  7.— Debiting  cred- 
itors' accounts,  8.— The  proprietor's  account,  8.— Theory  of  the 
ledger  account,  9. 

Review  Questions,  11. 

LECTURES     II-III 

Double  Entry  Bookkeeping:  Introductory,  13.— Double  entry 
bookkeeping  defined,  13.— Merchandise  defined,  14.— Cash  de- 
fined, 14. 

Expense  Account:  What  constitutes  an  item  of  expense,  17.— 
Double  entry  to  be  made  covering  items  of  expense,  17. 

Books  of  Account:  Books  of  account  defined,  19.— Books  of 
original  entry,  i9.--Books  of  final  entry,  19.— Reasons  for  keeping 
books,  19. 

The  Journal:  Introductory,  20.— The  need  of  two  books,  20.— 
The  functions  of  journals,  20.— Technique  of  recording  business 
transactions  in  the  journal,  21. 

Business  Customs  and  Methods:  Introductory,  22.— Recording 
purchase  transactions,  22.— Recording  sales  transactions,  23. 

Questions,  24. 

LECTURE     IV 

The  Ledger:  Introductory,  26.— Ledger  defined,  26.— Function 
of  the  ledger,  26.— Posting  defined,  26.— Technique  of  posting, 
26.— Complementary  account  defined,  27.— Practical  suggestion,' 
27.— Transferring  and  ruling  accounts,  28.— Footing  ledger  ac- 
counts, 28. 

Trial  Balance:  Trial  balance  defined,  28.— Method  used  in 
practice,  2a--The  object  in  taking  a  trial  balance,  28.— The  pro- 
cedure in  taking  a  trial  balance,  29.— Finding  errors,  29.— Some 
errors  which  a  trial  balance  will  not  reveal,  30. 

Questions,  30. 


3-12 


13-26 


26-31 


YU 


vni 


BOOKKEEPING.    THEORY    AND    PRACTICE 


I 


LECTURE    V 

Cash  Journal:  Cash  Journal  defined,  32. — Form  of  the  cash 
journal,  32. — Methods  of  recording  cash  receipts  and  payments, 
S2. — Advantages  of  the  cash  journal,  32. — The  technique  of  re- 
cording cash  receipts  and  payments,  33. — Balancing  the  cash 
book,  34. 

Petty  Cash  Journal:  Introductory,  34. — Form  of  the  Petty  Cash 
Journal,  35. — The  use  of  the  Petty  Cash  Journal,  35. — As  an 
auxiliary  book,  35. — As  a  book  of  account,  36. — Balancing  the 
Petty  Cash  Book,  36. 

Discounts:  Discount  defined,  36. — Trade  discount  defined,  36. — 
Cash  discount  defined,  37. — Dating,  37. — Entries  to  be  made,  38. 

Reconciliation  of  Bank  Balance:  Introductory,  40. — Why  the 
balance  of  cash  on  deposit  is  usually  greater  than  the  balance 
shown  by  the  cash  account,  40. — Accounting  for  the  difference,  41. 

Questions,  42. 

LECTURE    VI 

The  Basic  Principles  of  Double  Entry  Bookkeeping:  Double 
entry  bookkeeping  compared  to  a  balancing  scale,  44. — Assets 
defined,  44. — Liabilities  defined,  44. — Proprietorship  defined,  44. — 
Balance  sheet  defined,  46. — Application  of  these  rules,  47. — Divi- 
sion of  accounts,  51. — What  each  account  on  the  trial  balance 
represents,  51. — Distinguishing  between  assets  and  expenses,  51. 
— Distinguishing  between  liabilities,  capital,  and  income,  52. — Ex- 
ceptions to  the  rule,  52. 

The  Merchandise  Account:  What  the  balance  of  Merchandise 
Account  represents,  52. — How  the  gain  or  loss  on  merchandise  is 
determined,  53. — Why  the  Merchandise  Account  must  be  credited 
with  the  inventory,  53. — The  Merchandise  Account  is  a  mixed 
account,  55. 

Closing  the  Books:  Introductory,  55. — Profit  and  Loss  Account, 
55. — Expense  and  Income  accounts,  55. — Asset,  Liability,  and  Cap- 
ital accounts,  56. — Procedure  to  be  followed  in  closing  the  books, 
56. — Journal  entries  necessary  to  close  the  books,  57. — Balancing 
real  accounts,  58. — Trial  balance  after  closing,  59. 

The  Six  Column  Statement:      Introductory,  61. 

Questions,  65. 

LECTURES    VII-VIII 

Merchandise  Account,  Continued:  Introductory,  67. — Objection 
to  the  old-fashioned  Merchandise  Account,  67. — The  component 
parts  of  the  Merchandise  Account,  67. 

Subdivision  of  the  Expense  Account:  What  is  meant  by  an 
appropriate  expense  account,  68. 

The  Sales  Journal:  Sales  Journal  defined,  70. — Form  of  Sales 
Journal,  70. — Form  of  Abstract  Sales  Journal,  71. — Method  of 
recording  transactions  in  the  Abstract  Sales  Journal,  71. — Use  of 
the  Abstract  Journal,  71. 

The  Purchase  Journal:  Purchase  Journal  defined,  71. — Form 
of  Purchase  Journal,  72. — Method  of  recording  transactions  in 
the  Purchase  Journal,  72. — Posting  from  the  Purchase  Journal,  72. 


32-43 


44-66 


67-86 


TABLE    OF    CONTENTS 

Promissory  Notes:  Definition,  73._Why  notes  are  accepted  in 
settlement  of  accounts,  73— Notes  receivable,  73._Notes  payable, 
76.— Procedure  in  recording  notes,  78.— How  interest  on  notes  is 
calculated,  79.— Methods  used  for  calculating  commercial  inter- 
est, 79. 

Discounting  Notes:  What  is  meant  by  discounting  notes,  80.— 
How  bank  discount  is  calculated,  8r.— Procedure  in  discounting 
notes,  81. — Entries  to  be  made  when  we  discount  our  own  note, 
^2— Entries  to  be  made  when  we  discount  a  customer's  note,  83. 

"C.O.D."  Account:    Introductory,  84. 

Questions,  85. 

LECTURE     IX 

Controlling  Accounts  and  Subsidiary  Ledgers:  Introductory, 
^7— The  modern  practice,  87.— Controlling  Account  defined,  88.— 
Subsidiary  Ledger  defined,  88.— How  Controlling  Accounts  are 
established,  88.— Operation  of  the  Customers'  Controlling  Ac- 
count, 93— Operation  of  the  Creditors'  Controlling  Account,  98. 
The  ease  with  which  controlling  accounts  are  operated  in  practice, 
107.— The  six-column  journal,  107.— Advantages  of  controlling  ac- 
counts, no. 

Questions,  in. 

LECTURE    X 

Checks:  Introductory,  112.— Checks  returned  to  us  by  our 
creditors,  112.— Checks  lost  in  the  mails,  112.— Checks  dated 
ahead,  113.— Checks  deposited  with  the  bank  and  returned  un- 
paid, 113.— Certified  checks,  n3.— Checks  cashed,  114.— Giving  a 
check  in  exchange  for  currency,  115. 

Commercial  Drafts:  Introductory,  1 16.— Commercial  draft  de- 
fined, r  16.— Use  of  the  draft,  1 16.— Classification  of  drafts,  n6.— 
Treatment  of  sight  drafts  in  the  books  of  account— (a)  Our 
sight  drafts  on  debtors,  116.— (b)  Creditors'  sight  drafts  on  us, 
118.— Treatment  of  time  drafts  in  the  books  of  account— (a)  Our 
time  draft  on  a  debtor,  118.— (b)  Time  draft  on  us  by  a  creditor, 
n9.-In  general.-(a)  Sight  draft  with  bill  of  lading  attached, 
124. — (b)  Trade  acceptances,  124. 


UL. 


87-1 11 


I 12-125 


LECTURE    XI 

Treatment  of  the  Inventory,  Purchases,  and  Sales  Account  at 
the  time  of  closing  the  books:     Introductory,   126. 

Accounts  partly  real  and  partly  nominal:  Introductory,  129.— 
Treatment  of  accounts  partly  real  and  partly  nominal  at  the  time 
of  closing  the  books,  130.— Treatment  of  the  "Stationery  &  Print- 
ing Account,"  130.— Treatment  of  the  "Insurance  Account"  at  the 
time  of  closing  the  books,  132. 

LECTURE    XII 

Adjusting  and  closing  journal  entries:     Introductory,   134. 

The  Balance  Sheet:  Introductory,  134— Arrangement  of  groups 
and  items,  138. 


126-133 


134-138 


|| 


BOOKKEEPING,    THEORY    AND     PRACTICE 


I 


SUPPLEMENTARY  LECTURE  NOTES:     LECTURE  I  139-145 

Sales  Returns  and  Allowances:  Introductory,  139.— Form  of 
Sales  Returns  and  Allowance  Journal,  139.— Source  of  informa- 
tion from  which  entries  are  made  on  the  Sales  Returns  and 
Allowance  Journal,  139.— Posting  from  the  Sales  Returns  and 
Allowance  Journal,  139. 

Purchase  Returns  and  Allowances:  Introductory,  i40.--Form 
of  Purchase  Returns  and  Allowance  Journal,  140.— Source  of 
information  from  which  entries  are  made  on  the  Purchase  Re- 
turns and  Allowance  Journal,  140.— Posting  from  the  Purchase 
Returns  and  Allowance  Journal,  141. 

Freights:  Freight  defined,  141— Introductory,  141.— Meaning 
of  the  commercial  terms  F.O.B.,  F.A.S.,  and  CA.F.,  141.— Mer- 
chandise purchased  F.O.B.  point  of  shipment,  142.— Merchandise 
purchased  F.O.B.  destination,  142.— Sales  made  F.O.B.  point  of 
shipment,  143.— Sales  made  F.O.B.  destination,  144.— In  general 
145. 

PART   II:    STATEMENTS   OF    TRANSACTIONS 

ASSIGNMENT    I  ,^^,^ 

Outlme,  149.— Laboratory  exercise,  149.— Home  work,  150. 

ASSIGNMENT    II  j^^^j^^ 

Outline,  151.— Instructions,  151. —Transactions,  1-12,  152.— Home 
work,  153. 

ASSIGNMENT    III  154-156 

Outline,  154.— Transactions,  13-31,  154.— Home  work,  156. 


ASSIGNMENT    IV 
Outline,  157.— Home  work,  157. 

ASSIGNMENT    V 

Outline,    158.— Instructions,    158— Transactions,    32-74,    15a— 
Home  work,  163. 

ASSIGNMENT    VI 
Outline,  164. — Instructions,  164.— Home  work,  164. 


157 
158-163 

164 


ASSIGNMENT    VII  j^^.^^ 

Outline,    165.— Instructions,    165.— Transactions,    75-101,    166.— 
Home  work,  169. 

ASSIGNMENT   VIII  jy^^j^^ 

Outline,  170.— Transactions,  102-125,  170.— Home  work,  173. 


ASSIGNMENT     IX 
Instructions,  174.— Home  work,  176. 

ASSIGNMENT     X 

Outline,    177.— Instructions,    177.— Transactions,    126-162,   178.— 
Home  work,  183. 


174-176 
177-183 


TABLE    OF    CONTENTS 


XI 


ASSIGNMENT    XI 
Outline,  184.— Transactions,  163-193,  184.— Home  work,  189. 

ASSIGNMENT    XII 
Instructions,  190.— Home  work,  190. 

ASSIGNMENT    XIII 
Outline,  191.— Transactions,  194-254,  192.— Home  work,  200. 

ASSIGNMENT    XIV 
Home  work,  201. 

SUPPLEMENTARY    ASSIGNMENT     I 
Outline,  202.— Transactions,  255-318,  202.— Home  work,  211. 

SUPPLEMENTARY    ASSIGNMENT    II 
Instructions,  212. 

SUPPLEMENTARY     ASSIGNMENT     HI 
Instructions  213. 

SUPPLEMENTARY    ASSIGNMENT     IV 
Instructions,  214. 

PART  III:    BUSINESS   FORMS  AND   PAPERS 

1.  Deposit  Side  of  Check  Stub 

2.  Deposit  Slip 

3.  Purchase  Invoice  Covering  Services  Received 

4.  Example  of  Rubber   Stamp  Used   for  Approving  Purchase 

Invoices 

5.  Check  Stub  and  Check 

6.  Purchase  Invoice  Covering  Merchandise  Purchased 

7.  Shipping  Ticket 

8.  Sales  Invoice 

9.  Examples  of  Indorsements 

10.  Note  Payable 

11.  Note  Receivable 

12.  Sight  Draft 

13.  Time  Draft 

14-  Statement  of  Account 

15-  Statement  of  Account 


184-189 


190 


191-200 


201 


202-211 


212 


213-214 


214 


217 
218 
219 

219 

220 

221 

222 

223 

224 

225 

226 

227 

228 

229 

230 


lll 


I 


PART  I 
LECTURE  NOTES 


1  i 


LECTURE  I 

INTRODUCTORY 

Bookkeeping  defined.— Bookkeeping  is  the  art  of  recording 
business  transactions  in  a  systematic  manner. 

Any  exchange  of  value  for  value  is  a  business  transaction. 
Thus  a  man  employed  by  another  renders  services  for  which  he 
is  reimbursed.  This  is  a  business  transaction  because  the 
employee  exchanges  value  in  the  form  of  services  for  value  in 
the  form  of  cash. 

Bookkeeping  concerns  itself  with  the  recording  of  pecuniary 
transactions  in  the  terms  of  debit  and  credit.  Therefore,  before 
any  attempt  can  be  made  to  explain  the  routine  and  technique  of 
recording  business  transactions,  a  knowledge  of  these  terms  is 
essential.  The  terms  debit  and  credit  are  used  to  designate  the 
two  sides  of  an  account.  Hence  we  shall  first  consider  the 
nature  of  the  account. 


1 


THE   LEDGER  ACCOUNT 

Account  defined.— An  account  is  a  systematic  arrangement  of 
financial  facts  of  the  same  or  opposite  tendency  leading  to  a 
conclusion.     (Sprague.) 

In  order  to  explain  the  ledger  account  we  shall  use  the  fol- 
lowing transactions  with  John  Doe,  our  customer : 

Jan.  2,  19—.    Sold  him  $500  worth  of  merchandise. 


5, 
9, 

10, 

12, 

20, 

27. 


(( 
u 


u 


200 
300 


(( 


u 


Received  from  him  $400  on  account 
Sold  him  $100  worth  of  merchandise. 
Received  from  him  $100,  balance  due  on  invoice  of  Tan   2 

19-.  *    ' 

Sold  him  $50  worth  of  merchandise. 
Received  from  him  $200  in  payment  of  invoice  of  Tan    c 

19—.  '  ^' 


M 


4  BOOKKEEPING,   THEORY   AND    PRACTICE 

Account  in  statement  form.— We  might  arrange  these  trans- 
actions in  the  following  form  and  reach  the  conclusion  sought, 
viz.,  the  amount  which  John  Doe  owes  us : 


/ 

Illustration  No.   J 
Account  in  Statement  Form 

Record  of  John  Doe's  transactions  with  us 
Jan.  2,  19—.    Merchandise  (sold  him) 


9f 


10, 


« 


11 


M 


10, 

M 

12, 

«< 

12, 

f< 

14, 

U 

14, 

tt 

aoi 

M 

20, 

M 

27, 

tt 

27, 


M 


Cash  received  on  account 

Balance  due  us 
Merchandise   (sold  him) 

Balance  due  us 

Cash  received,  being  balance   due  on  invoice  of 
Jan.  2,  19— 

Balance  due  us 
Merchandise  (sold  him) 

Balance  due  us 

Cash  received,  in  payment  of  invoice  of  Jan.  5, 

19 — 

Balance  due  us 


$500 
200 

300 


$1000 
400 

$600 
100 

$700 

100 

$600 
50 

$650 

200 

$450 


Account  in  account  form.— Thus  we  have  arranged  in  rather 
an  inconvenient  form,  the  history  of  John  Doe's  transactions 
with  us. 

We  could  simplify  this  form  by  arranging  all  items  of  the 
same  nature  (such  as  merchandise  sold,  for  they  have  the  tend- 
ency of  increasing  the  amount  of  John  Doe's  indebtedness  to 
us)  in  one  column,  and  listing  in  another  column  all  items  of 
the  opposite  nature  (like  cash  received),  for  they  have  the 
tendency  of  reducing  the  amount  of  John  Doe's  indebtedness 
to  us.  The  difference  between  the  sums  of  the  two  sides  will 
then  represent  the  conclusion  sought ;  i.e.,  the  balance  due  us. 
To  illustrate : 


•t  T 


O      0  •    Oo 
4      ^W  Nh 


Ul 


2 


d 


0       0       OoOoO*' 
^       ^       Oo    0«  ^^ 


Ul 


A      ^ 


-f—, 


«        •         0  0 


. 


_^ N     A 


LECTURE    I 

Illustration  No.   2 

Account  in  Account  Form 

JOHN  DOE 


He  owes  us   for  merchandise  sold 
him  as  follows : 
19 — 
Jan.   2, 

5> 

9* 

12, 


Mdse.  sold 


H 


(f 


M 


« 


(( 


(I 


$500 

200 
300 
100 

SO 


He  has  reduced  the  amount  which 
he  owes  us  as  follows: 
19— 
Jan.    10,    Cash   rec'd   on 

acct.  $400 

I4»    Cash    rec'd    on 

balance 
27,    Cash  rec'd 


100 
200 


This  summary  of  the  transactions  of  John  Doe  with  us  is  by 
far  a  more  convenient  and  efficient  arrangement  than  that  shown 
m  Illustration  No.  i. 

We  are  now  in  a  position  to  tell  quickly  the  amount  which 
John  Doe  owes  us,  the  amount  of  his  purchases  during  any 
given  period  of  time,  the  total  amount  of  cash  received  from 
him  the  mvoices  which  remain  unpaid,  as  well  as  the  time  taken 
by  him  m  paying  his  bills ;  all  of  which  information  is  of  interest 
to  the  proprietor. 

Ledger  account  in  standard  fomi.-If  we  supply  the  necessary 
ruling  to  the  above  account  (Illustration  2),  we  have  a  ledger 
account  in  standard  form.     See  Illustration  3,  opposite 

Columns  A  and  B  are  used  for  recording  the  date,  column  A 
for  the  month,  column  B  for  the  number  of  the  day  The 
number  of  the  year  is  written  in  the  month  column. 

Column  C  is  used  as  an  explanation  column. 

Column  D  is  commonly  called  the  "Posting  Reference"  col- 
umn. Its  purpose  is  to  indicate  briefly  the  book  and  folio  on 
which  the  transaction  was  originally  recorded. 

Columns  E  and  F  are  money  columns,  E  being  used  for 
dollars,  and  F  for  cents. 

The  standard  form  of  ledger  account  is  divided  into  two 
sides :  the  left-hand  side  is  known  as  the  debit  side ;  and  the 
nght-hand  side  is  known  as  the  credit  side  of  the  account. 

The  ledger  is  the  book  in  which  accounts  are  kept,  hence  the 
term  ledger  account."  Accounts  are  kept  for  the  purpose  of 
collecting  all  related  debits  and  credits  under  proper  titles 


INTENTIONAL  SECOND  EXPOSURE 


i^ 


It 


I 


LECTURE    I 

Illustration  No.   2 

Account  in  Account  Form 

JOHN  DOE 


He  owes  us  for  merchandise  sold 
him  as  follows: 
19 — 
Jan.   2, 

& 

% 

12, 

ap, 


Mdse.  sold 


M 


U 


t€ 


U 


$500 

200 

300 

100 

50 


He  has  reduced  the  amount  which 
he  owes  us  as  follows: 
19 — 
Jan.    10, 


Cash    rec'd 

acct. 
14,    Cash    rec'd 

balance 
27,    Cash  rec'd 


on 


on 


$400 

100 
200 


This  summary  of  the  transactions  of  John  Doe  with  us  is  by 
far  a  more  convenient  and  efficient  arrangement  than  that  shown 
in  Illustration  No.  i. 

We  are  now  in  a  position  to  tell  quickly  the  amount  which 
John  Doe  owes  us,  the  amount  of  his  purchases  during  any 
given  period  of  time,  the  total  amount  of  cash  received  from 
him  the  invoices  which  remain  unpaid,  as  well  as  the  time  taken 
by  him  in  paying  his  bills ;  all  of  which  information  is  of  interest 
to  the  proprietor. 

Ledger  account  in  standard  form—If  we  supply  the  necessary 
ruling  to  the  above  account  (Illustration  2),  we  have  a  ledger 
account  in  standard  form.     See  Illustration  3,  opposite 

Columns  A  and  B  are  used  for  recording  the  date,  column  A 
tor  the  month,  column  B  for  the  number  of  the  day  The 
number  of  the  year  is  written  in  the  month  column. 

Column  C  is  used  as  an  explanation  column. 

Column  D  is  commonly  called  the  "Posting  Reference"  col- 
umn. Its  purpose  is  to  indicate  briefly  the  book  and  folio  on 
which  the  transaction  was  originally  recorded. 

Columns  E  and  F  are  money  columns,  E  being  used  for 
dollars,  and  F  for  cents. 

The  standard  form  of  ledger  account  is  divided  into  two 
sides :  the  left-hand  side  is  known  as  the  debit  side ;  and  the 
nght-hand  side  is  known  as  the  credit  side  of  the  account. 

The  ledger  is  the  book  in  which  accounts  are  kept,  hence  the 
term  ledger  account."  Accounts  are  kept  for  the  purpose  of 
collecting  all  related  debits  and  credits  under  proper  titles 


^paat 


BOOKKEEPING,   THEORY   AND    PRACTICE 


n 


|l! 


THEORY  OF  DEBIT  AND  CREDIT  AS  APPLIED  TO 

PERSONAL  ACCOUNTS 

Personal  accounts  defined.— By  "personal  accounts'^  is  meant 
ledger  accounts  with  persons  such  as  customers,  creditors,  and 
the  proprietor. 

Debtor  defined.— A  debtor  is  one  who  is  in  debt.  Commer- 
cially the  word  "debtor"  means  one  from  whom  a  debt  is  due. 

Debit  is  a  Latin  word  meaning,  "He  owes."  It  is  used  inter- 
changeably in  business  with  Charge. 

Dr.  is  the  abbreviation  used  for  either  debtor  or  debit. 

Debiting  customers'  accounts,— Thus,  when  we  sold  John  Doe 
on  Jan.  2,  5,  and  9,  merchandise  in  amount  $500,  $200,  and 
$300,  respectively,  he  became  indebted  to  us,  and  we  recorded 
the  transactions  on  the  left,  or  debit  side  of  the  account.  The 
reason  for  using  the  left-hand  side  is  that  custom  has  sanctioned 
the  use  of  the  left-hand  side  as  the  debit  side,  and  the  right- 
hand  side  as  the  credit  side. 

Illustration  No.  4 

Debtor.    One  who  is  in  debt,  or 

one  from  whom  a  debt  is  due. 
Debit.    He  owes. 


Dr. 


JOHN  DOE 


$500.00 
200.00 
300.00 


The  account  at  this  point  reads :  John  Doe  owes  us,  or  is 
indebted  to  us  on  whose  books  this  account  appears,  to  the 
extent  of  $1000. 

Creditor  defined.— A  creditor  is  one  who  has  trusted  another. 
Commercially,  "creditor"  means  one  to  whom  a  debt  is  due. 

Credit  means,  "He  trusts." 

Cr.  is  the  abbreviation  used  for  either  creditor  or  credit. 

Crediting  creditors'  accounts.— When  we  purchase  $500  worth 
of  merchandise  from  James  Smith  on  time,  he  becomes  a  cred- 
itor of  ours  because  he  has  trusted  us  to  the  extent  of  $500. 
Hence,  his  account  must  be  credited. 


V 


LECTURE    I 
Illustration  No.   3 


Creditor.  One  who  has  trusted  us, 
or  one  to  whom  a  debt 
is  due: 

Credit.    He  trusts,  or  we  owe. 


JAMES  SMITH 


Cr. 


$500.00 


The  account  at  this  point  reads,  James  Smith  has  trusted  us 
to  the  extent  of  $500,  or  we  owe  him  $500. 

Crediting  customers'  accounts.-When  John  Doe  on  Jan.  10, 

ante       t?l  ^7""'"'  '"  "''  '^'   ""^^""^   ^«^  ^^«   recorded 
on  the  right-hand,  or  credit  side,  of  the  account. 


Illustration  No.  6 


Debtor.    One  who  is  in  debt; 

one  from  whom  a  debt  is 
due. 
Debit.    He  owes. 


Dr. 


JOHN  DOE 


Cr. 


$500.00 
200.00 
300.00 


$400.0Q 


The  item  of  $400  on  the  right-hand  side  does  not  represent 
a  debt  due  to  John  Doe  nor  was  the  entry  made  beZse  he 
trusted  us  to  the  extent  of  $400.  The  reZon  for  credhW  tL 
account  >s  that  John  Doe  has  decreased  his  indebtedness"'  Z 

total  $1000  which  he  owes  us  (as  was  done  in  Illustration  No  i) 
we  record  the  item  on  the  opposite  side.    The  recording  o"  the' 

The  debit  side  now  exceeds  the  credit  side    by    $600     An 

a  count  m  th,s  condition  is  called  a  debit  halancl  a^Treai^ 

John  Doe,  he  owes  us  $600."  ' 


I 


8 


BOOKKEEPING,   THEORY    AND    PRACTICE 


Debit  balance  defined. — An  account  the  total  debits  of  which 
exceed  the  total  credits  is  said  to  show  a  debit  balance. 

Debiting  creditors'  accounts. — Let  us  assume  that  we  pay 
James  Smith  $200  on  account  of  our  indebtedness  of  $500. 

Illustration   No.   7 

Creditor.  One  who  has  trusted  us, 
or  one  to  whom  a  debt 
is  due. 

Credit.    He  trusts,  or  we  owe. 


Dr. 


JAMES  SMITH 


Cr. 


$200.00 


$500.00 


Smith's  account  is  debited  not  because  he  owes  us  $200,  but 
by  virtue  of  the  fact  that  we  have  reduced  our  indebtedness  to 
him  by  $200. 

The  credit  side  now  exceeds  the  debit  side  by  $300.  An  ac- 
count in  this  condition  is  called  a  credit  balance  and  reads, 
"We  are  indebted  to  John  Smith  in  the  amount  of  $300." 

Credit  balance  defined. — An  account,  the  total  credits  of  which 
exceed  the  total  debits,  is  said  to  show  a  credit  balance. 

We  may  now  formulate  (from  what  we  have  done)  rules  for 
debiting  and  crediting  customers*  accounts  and  creditors'  ac- 
counts. 

Rules  for  debiting  and  crediting  customers'  accounts: 

Debit  for  merchandise  sold  (see  Illustration  No.  4). 

Credit  for  cash  received  (see  Illustration  No.  6). 

Rules  for  crediting  and  debiting  creditors'  accounts: 

Credit  for  merchandise  received  (see  Illustration  No.  5.) 

Debit  for  cash  paid  (see  Illustration  No.  7). 

The  proprietor's  account — We  have  now  disposed  of  two 
classes  of  personal  accounts,  viz.,  Customers'  Accounts  and 
Creditors'  Accounts.  A  third  class  of  personal  accounts  is  that 
known  as  Proprietorship,  or  Capital  Accounts. 

Rules  for  debiting  and  crediting  the  proprietor's  account  fol- 
low: 

The  proprietor's  account  is  credited  with  the  amount  of  his 
investment.     It  is  credited  whenever  additional  investments  of 


LECTURE    I  9 

capital  are  made  to  the  business.     It  is  debited  for  withdrawals 
of  capital. 

Assuming  that  Arthur  Reid  starts  in  business  January  2, 
19 — ,  investing  $10,000  in  cash,  his  account  would  be  credited 
as  follows: 

Illustration   No.   8 
ARTHUR  REID,  PROPRIETOR 


$10,000 


The  proprietor's  account  is  credited  in  order  to  show  the 
amount  which  the  business  owes  to  the  Proprietor,  considering 
the  Proprietor  apart  from  the  business.  In  order  to  distinguish 
between  debts  of  the  business  to  outsiders,  and  to  the  owner, 
the  owner's  account  is  usually  headed  "Capital,"  or  "Proprietor." 

The  Proprietor's  Account  does  not  represent  a  debt  of  the 
business  to  him,  but  shows  his  ownership  in  the  business.  Hence, 
in  modern  bookkeeping,  the  Proprietor's  Account  represents 
ownership  and  not  a  debt.  This  point  will  be  explained  more 
clearly  in  a  subsequent  chapter. 

Theory  of  the  ledger  account. — Arithmetically  a  ledger  ac- 
count is  a  tabulation  of  additions  and  subtractions,  or  increases 
and  decreases. 

The  conclusion  sought  in  the  case  of  a  customer's  account  is, 
'''How  much  the  customer  owes  us." 

We  have  learned  that  custom  has  sanctioned  the  use  of  the 
left-hand  side  as  the  debit  side  and  that  "debit"  means  "he 
owes."  Therefore  all  records  of  amounts  which  John  Doe 
owed  us  were  made  on  the  debit  side;  and,  since  his  payments 
reduced  his  indebtedness  to  us,  they  had  to  be  subtracted  in 
some  way  from  the  same  side.  In  bookkeeping,  when  we  ivish 
to  subtract  from  any  one  side  of  an  account,  we  record  the  item 
on  the  opposite  side. 

Hence,  all  payments  made  to  us  by  John  Doe  were  recorded 
on  the  (opposite)  credit  side  because  they  represented  amounts 
to  be  subtracted  from  the  debit  side. 


lO 


BOOKKEEPING,    THEORY    AND    PRACTICE 


Therefore,  in  the  case  of  a  customer's  account,  the  debit  side 
represents  the  additive  or  increase  side,  and  the  credit  side  the 
subtractive  or  decrease  side. 

The  conclusion  sought  in  the  case  of  a  creditor's  account  is, 
"How  much  we  owe  him."  Custom  has  sanctioned  the  use  of 
the  right-hand  side  of  the  accotmt  as  the  credit  side ;  and,  as  we 
said,  credit  means  "we  owe."  Therefore,  a  record  of  the  amount 
which  we  owed  James  Smith  was  made  on  the  credit  side  of  the 
account;  and,  since  our  payment  to  him  reduced  our  indebted- 
ness, it  had  to  be  subtracted  from  that  side. 

But  instead  of  subtracting  the  payment  made  to  James  Smith 
from  the  credit  side,  it  was  recorded  on  the  (opposite)  debit 
siide,  an  entry  which  brought  about  the  same  result. 

Illustration  No.  g 

Showing  the  additive  or  increase,  and  the  subtractive  or  decrease  sides 

of  Customers*  and  Creditors'  Accounts 


Additive  or 

Subtractive  or 

Subtractive  or 

Additive  or 

Increase  Side               Decrease  Side 

Decrease  Side              Increase  Side 

JOHN  DOE 

JAMES  SMITH 

Dr.                (Customer)               Cr. 

Dr.                 (Creditor)                Cr. 

Mdse.    sold   $500 

Cash    rec'd    $400 

Cash    paid    $200 

Mdse.   Pur.  $500 

200 

Entry  was   made 

Entry  was   made 

"        300 

on  this   side  be- 

on this   side   be- 

cause   it     repre- 

cause    it     repre- 

sents  an  amount 

sents   an  amount 

to  be   subtracted 

to  be   subtracted 

from    the    oppo- 

from   the    oppo- 

site side 

site  side 

The  terms  "debit"  and  "credit"  had  their  origin  with  personal 
accounts ;  and,  for  that  reason,  personal  accounts  have  been  used 
in  this  instance  to  illustrate  the  use  of  these  terms. 

In  subsequent  chapters,  we  shall  explain  the  use  of  the  terms 
"debit"  and  "credit"  as  applied  to  accounts  other  than  personal 
accounts. 


) 


LECTURE    I  II 

REVIEW  QUESTIONS 

1.  Define  bookkeeping. 

2.  Into  how  many  sides    is    the    standard    ledger    account 
divided  ?    Give  the  name  of  each  side. 

3.  Why  is  the  left-hand  side  and  not  the  right-hand  side 
used  as  the  debit  side? 

4.  A  savings  bank  book  reads : 

H.  BANK  IN  ACCOUNT  WITH  A.  B. 


Dr. 

Cr. 

19— 

19— 

Jan.  I 

$100.00 

Feb.  20 

$20.00 

March  15 

50.00 

Set  up  the  account  of  A.  B.  on  the  books  of  the  bank. 
5.    The  account  of  John  Doe  is  as  follows : 


JOHN 

DOE 

19— 

Feb.  10, 

Mdse. 

$500 

Mar.  II, 

Cash 

$500 

20, 
Mar.   5, 

ID, 

« 
« 

u 

200 

800 

1000 

Apr.  25, 
May  10, 

n 
It 

200 
300 

Apr.  16, 

u 

500 

19, 

u 

700 

(a)  How  much  has  he  purchased  to  date? 

(b)  How  much  has  he  paid  to  date? 

(c)  How  much  does  he  still  owe? 

(d)  How  does  he  pay  his  bills  which  are  due  in  30  days? 

(e)  What  invoices  remain  unpaid? 

6.     Set  up  ledger  accounts  for  the  following  transactions: 

Jan.  2,  19—  John  Walker  starts  in  business  investing  cash $15,000 

3,  "  Purchased  on  acct.   from  L.   Stem,  merchandise..  5,000 

4,  "  Purchased  on  acct.  from  H.  Cann.  mdse 4,000 

5,  "  Sold  on  acct.  to  J.  Smith,  mdse 4,000 

10,    "  Sold  on  acct.  to  Bell  &  Co.,  mdse 2,000 


V 


12 


12, 

14, 
16, 
17, 

20, 

24, 

25, 


« 
« 
(< 


BOOKKEEPING,   THEORY   AND   PRACTICE 

J.  Smith  returns  defective  merchandise j  qoo 

J.  Smith  pays  by  check  on  account j 'qoo 

Paid  L.   Stern  on   account 2^00 

Returned  to  H.  Cann  defective  mdse.  ..^^........  1I500 

Paid  L.  Stem  balance  of  account /qqq 

Purchased  on  account  from  L.  Stem,  merchandise  2*000 

Received   from  J.   Smith  balance  of  account a'ooo 


LECTURES   II-III 

DOUBLE   ENTRY  BOOKKEEPING 

Introductory. — ^We  have  learned  that  a  business  transaction 
is  an  exchange  of  value  for  value.  Hence,  every  business  trans- 
action has  a  twofold  effect:  something  is  received  in  exchange 
for  something  which  is  given  or  which  is  to  be  given,  and  vice 
versa. 

The  system  of  bookkeeping  whereby  this  twofold  effect  is 
recorded  is  known  as  the  double  entry  system. 

Double  entry  bookkeeping  defined.— Double  entry  bookkeep- 
ing is  the  system  whereby  the  twofold  effect  of  each  business 
transaction  is  recorded.  It  is  based  on  the  principle  of  equi- 
librium or  balance,  i.e.,  on  equal  debits  and  equal  credits  in 
amount. 

By  equal  debits  and  equal  credits  in  amount  is  meant  that  the 
total  debit  or  debits  made  for  each  transaction  must  be  equal  in 
amount  to  the  total  credit  or  credits  made.  Hence,  it  is  not  a 
matter  of  the  number  of  accounts  debited  or  credited  for  each 
transaction,  but  rather  a  matter  of  amounts. 

The  rule  is  that  the  amount  of  the  debits  and  credits  made 
for  each  transaction  must  always  be  equal. 

To  illustrate:  On  Jan.  3,  19—,  (see  exercise  No.  i),  we  pur- 
chased from  Bell  &  Co.  on  account,  merchandise  in  amount 
$5000.  From  what  we  have  learned,  we  know  that  Bell  &  Com- 
pany's account  on  our  books  must  be  credited  to  the  extent  of 
$50CX),  because  we  are  indebted  to  them  for  that  amount.  And, 
inasmuch  as  we  wish  to  record  the  twofold  effect,  it  follows 
that  what  was  received  must  also  be  recorded.  Hence,  mer- 
chandise must  be  debited  (because  merchandise  was  received) 
with  the  same  amount,  $5000. 

Our  entry,  therefore,  would  be  a  debit  to  merchandise  of 
$5000  (because  merchandise  was  received),  and  a  credit  to  Bell 
&  Co.  of  $5000  (because  we  owe  them  that  amount). 


13 


If 


i 


14  BOOKKEEPING,   THEORY   AND    PRACTICE 

Expressed  in  account  form,  the  twofold  effect  is  as  follows : 

Illustration  No.  10 
Merchandise  Bell  &  Co. 


$5,000.00 


$5,000.00 


Merchandise  defined. — Merchandise  is  the  name  given  to  com- 
modities bought  to  be  sold  again  for  the  purpose  of  making  a 
profit. 

In  the  case  of  the  proprietor  who  invested  on  Jan.  i,  19 — , 
(see  exercise  No.  i),  $10,000  in  cash,  the  twofold  effect  is  as  fol- 
lows: 

Illustration  No.  11 


Cash 


A.  Reid,  Prop. 


$10,000 


$10,000 


Cash  must  be  debited  with  $10,000  because  the  business  re- 
ceived cash,  while  the  proprietor's  account  must  be  credited 
with  the  same  amount  to  show  the  indebtedness  of  the  business 
to  the  proprietor. 

Cash  defined. — Cash  is  money  or  its  equivalent  (such  as 
checks  or  money  orders)  generally  accepted  in  payment  of 
debts. 

In  the  case  of  Cann  &  Co.  (our  customer),  to  whom  we  sold 
on  Jan.  4,  19 — ,  (see  exercise  No.  i),  merchandise  in  amount 
$2000,  the  twofold  effect  is  as  follows : 

Illustration  No.  is 
Merchandise  Cann  &  Co. 


$2,000 


$2,000 


We  must  debit  or  charge  Cann  &  Company's  account  with 
$2,000  because  they  owe  us  that  amount,  and  we  must  credit 
merchandise  with  the  same  amoimt  because  we  gave  or  parted 
with  merchandise. 

In  the  case  of  Bell  &  Co.,  our  creditor,  to  whom  we  paid  on 


LECTURES     II-III 


IS 


Jan.  12,  19 — .  (see  exercise  No.  i).  cash  on  account  in  amount 
$1,500,  the  twofold  effect  is  as  follows: 


Illustration  No.  13 


Cash 


Bell  &  Co. 


$1,500 


$1,500 


We  must  debit,  or  charge.  Bell  &  Company's  account  because 
we  have  reduced  our  indebtedness  to  them,  and  we  must  credit 
cash  because  we  gave  or  parted  with  cash. 

If  we  consolidate  the  transactions  shown  in  illustrations 
numbers  10  to  13  inclusive,  the  accounts  would  appear  as  fol- 
lows : 

Illustration  No.  14 
Merchandise  Bell  &  Co. 


(r)    $5,000 


$2,000     (3) 


(4)    $1,500 


$5,000    (i) 


Cash 


(2)     $10,000 


$1,500    (4) 


Cann  &  Co. 


A.  Reid,  Proprietor 


(3)     $2,000 


$10,000    (2) 


Note  that  the  numbers  in  parentheses  indicate  the  double  entry 
made. 

It  will  be  observed  (from  illustration  No.  14)  that  the  mer- 
chandise and  cash  accounts,  like  customers'  accounts,  have  the 
debit  side  as  the  additive  side  and  the  credit  side  as  the  sub- 
tractive  side.  Hence,  the  rules  for  debiting  and  crediting  mer- 
chandise and  cash  accounts  are  the  same  as  the  rules  for  debit- 
ing and  crediting  customers'  accounts. 


i6 


BOOKKEEPING,   THEORY   AND    PRACTICE 


Illustration  No.   15 


Rules  for  debiting  and  crediting  merchandise  and  cash  ac- 
counts : 

Merchandise 


(Debit)     When  received  or 
increased. 


(Credit)     When  given  or 
decreased. 


Cash 


(Debit)     When  received  or 
increased. 


(Credit)     When    given    or 
decreased. 


The  same  rules  apply  to  all  property  accounts.  Examples  of 
property  accounts  commonly  kept  by  most  concerns  are:  furni- 
ture and  fixtures,  cash,  and,  in  the  case  of  a  manufacturing 
concern,  machinery,  tools,  land,  and  buildings,  etc. 

We  now  have  illustrated  the  double  entry  to  be  made  for 
transactions  involving  a  purchase  and  a  sale  of  merchandise 
"on  account."  On  account  (on  a/c)  signifies  that  some  person's 
account  should  be  debited  or  credited.  Such  transactions  are 
commonly  called  time  transactions,  signifying  that  payment  is 
to  be  made  at  some  designated  time  in  the  future.  Thus,  when 
we  purchase  merchandise  without  paying  at  the  time  of  pur- 
chase, the  transaction  is  said  to  be  "on  time,"  or  on  a/c,  which 
means  that  the  person  or  concern  from  whom  we  made  the 
purchase  is  to  be  credited. 

Simple  rules  for  debiting  and  crediting  transactions  "on  a/c" 
are: 

Debit  the  customer  or  creditor. 

Credit  what  is  given. 
See  Illustration  No.  12  and  No.  13. 

Credit  the  customer  or  creditor. 

Debit  what  is  received. 
See  Illustration  No.  10. 

If  we  pay  for  merchandise  or  other  goods  at  the  time  of 
purchase,  the  transaction  is  said  to  be  for  cash.  It  is  not  cus- 
tomary in  business  to  keep  accounts  with  persons  or  concerns 
from  whom  we  purchase  or  to  whom  we  sell  for  cash. 


LECTURES     II-III 


17 


To  illustrate:     If  we  purchase  $1,000  worth  of  merchandise 
for  cash,  the  twofold  effect  is  as  follows : 


Illustration  No.   16 


Merchandise 


Cash 


$1,000.00 


$1,000.00 


Merchandise  must  be  debited  because  merchandise  was  re- 
ceived, and  cash  must  be  credited  because  cash  was  given. 

In  the  case  of  a  sale  of  $500  worth  of  merchandise  for  cash, 
the  twofold  effect  is  as  follows : 


Illustration  No.   17 


Merchandise 


Cash 


$500.00 


$500.00 


Cash  must  be  debited  because  cash  was  received,  and  mer- 
chandise must  be  credited  because  merchandise  was  given. 
These  are  known  as  cash  transactions. 
Simple  rules  for  debiting  and  crediting  cash  transactions  are: 

Debit  what  is  received. 
Credit  what  is  given. 

EXPENSE  ACCOUNT 

What  constitutes  an  item  of  expense.— We  must  distinguish 
between  properties  acquired  by  a  business  and  expenses  incurred 
by  a  business. 

A  business  acquires  property  when  it  receives,  either  for  cash 
or  on  account,  something  which  the  business  can  again  convert 
into  cash. 

A  business  incurs  expenses  when  it  receives  either  for  cash 
or  on  account,  services,  or  goods  to  be  consumed  by  the  business 
itself. 

Double  entry  to  be  made  covering  items  of  expense.— When- 
ever the  business  receives  services  or  purchases  goods  to  be 
consumed,  an  appropriate  expense  account  must  be  debited. 
Usually,  separate  expense  accounts  are  kept  to  record  the  differ- 
ent services  and  goods  received.  For  the  time  being,  however, 
we  shall  use  but  one  expense  account,  to  which  will  be  charged 


i8 


BOOKKEEPING,   THEORY   AND    PRACTICE 


f 


all  services  received,  and  goods  purchased  to  be  consumed  by 
the  business  itself. 

For  the  purpose  of  illustration,  let  us  consider  the  following 

transactions : 

* 
Jan.   2,  ig— .    Paid  Jay  Realty  Co.,  $200,  rent  for  the  month. 

4»  l^— •    Purchased   on   account   from  J.   Slater,  printed   matter  in 

amount  $30. 

S>  19 — •    Paid  salaries  for  the  week,  $45. 

6,  19 — ,    Purchased  for  cash,  postage  stamps  in  amount  $ro. 

Before  we  can  determine  the  accounts  affected,  it  is  necessary 
for  us  to  decide  whether  we  received  property,  services,  or 
goods  to  be  consumed  by  the  business. 

In  the  transaction  of: 

Jan.   2,    We  received  services  (use  of  premises)  for  which  we  paid  $200 
rent  in  cash. 

4,  We   received   goods   to   be   consumed   by  the  business    (printed 

matter).     And,  as  the  purchase  was  made  on  account,   we 
owe  J.  Slater  $30. 

5,  We  received  services  for  which  we  paid  our  employees  $45  sala- 

ries in  cash. 

6,  We   received   goods   to  be  consumed  by  the  business    (postage 

stamps),  for  which  we  paid  $10  in  cash. 

In  each  case,  services  or  goods  to  be  consumed  by  the  business 
were  received;  therefore  expense  account  must  be  debited. 

The  double  entry  for  each  of  the  foregoing  transactions  ex- 
pressed in  account  form  is  as  follows : 


Illustration  No.  18 


Expense 


Cash 


(i)  Rent       $200 

(2)  Station- 

ery and 

printing     30 

(3)  Salaries     45 

(4)  Postage      10 

• 
J.  Slater 

Station- 

ery and 

printing 

$30  (2) 

Rent 

$200  (i) 

Salaries 

45 

(3) 

Postage 

ID 

(4) 

LECTURES     II-III 


19 


Note  that  the  numbers  in  parentheses  indicate  the  double  entry 
made. 

It  will  be  noticed  that  the  "Expense  Account,"  like  the  cus- 
tomers', merchandise,  and  cash  accounts,  has  the  debit  side  as 
the  additive  or  increase  side  and  the  credit  side  a«  the  sub- 
tractive  or  decrease  side. 

The  rules  for  debiting  and  crediting  Expense  Account  are  as 
follows : 

Illustration  No.   ig 
Expense  Account 


(Debit)  When  services  or  goods  to 
be  consumed  are  received 
or  increased. 


(Credit)  When  goods  to  be  con- 
sumed are  returned  or 
decreased;  or  when  serv- 
ices originally  charged 
to  this  account  are  de- 
creased. 


BOOKS    OF   ACCOUNT 

Books  of  account  defined.— Books  used  for  recording  business 
transactions  in  terms  of  debit  and  credit  are  called  books  of 
account. 

Books  of  account  may  be  divided  into  two  classes,  viz.,  books 
of  original  entry  (technically  called  journals),  and  books  of  final 
entry  (technically  called  ledgers). 

Books  of  original  entry.— Journals  are  called  books  of  original 
entry  because  the  first  or  original  record  of  every  business 
transaction  in  books  of  account  is  made  in  a  journal. 

Books  of  final  entry.- Ledgers  are  called  books  of  final  entry 
because  the  final  record  of  every  business  transaction  is  made 
m  accounts  kept  in  the  ledger. 

Reasons  for  keeping  books.-There  are^hree  main  reasons 
tor  keeping  books,  as  follows : 

(1)  To  enable  the  proprietor  to  have  a  permanent  record 
ot  his  business  transactions  for  future  reference  ; 

(2)  To  enable  him  to  tell  what  his  financiaUondition  is  at 
any  given  time ;  and     . 

(3)  To  enable  him  to  tell  what  his  profit  or  loss  has  been 
for  any  given  period  of  time. 


20 


BOOKKEEPING,    THEORY   AND    PRACTICE 


I 


f 


This  information  may  be  secured  by  recording  every  business 
transaction  in  chronological  order  in  a  book  of  original  entry, 
and  then  by  classifying  these  transactions  in  accounts  kept  in 
the  ledger. 

THE   JOURNAL 

Introductory. — The  making  of  a  complete  bookkeeping  record 
requires  the  use  of  at  least  two  books,  viz.,  one  book  of  original 
entry  (a  journal)  and  one  book  of  final  entry  (a  ledger).  Trans- 
actions must  be  entered  in  a  journal  first  before  they  can  be 
recorded  in  accounts  in  the  ledger. 

The  need  of  two  books. — Accounts,  as  we  have  learned,  are 
kept  for  the  purpose  of  collecting  all  related  debits  and  credits 
under  proper  titles.  In  Illustration  No.  3,  we  collected  all  the 
debits  and  credits  relating  to  John  Doe  under  the  title  John 
Doe,  so  as  to  be  in  a  position  to  tell  how  much  he  owed  us. 

It  is  possible  to  record  transactions  directly  in  accounts  in 
the  ledger.  It  is  not.  however,  good  practice  to  do  so,  for  the 
following  reasons :  first,  there  is  the  need  of  another  record  of 
business  transactions  arranged  in  chronological  order,  so  that 
we  may  refer  to  them  by  date  of  occurrence ;  secondly,  if  we 
were  to  make  entries  directly  in  accounts  in  the  ledger  without 
first  making  a  complete  record  of  them  in  some  other  book, 
we  should  experience  great  difficulty  in  finding  errors.  For 
example,  if  we  sold,  let  us  say,  $500  worth  of  merchandise 
to  John  Doe,  and  then  debited  the  account  of  John  Doe  in 
the  ledger  with  $500,  but  failed  to  credit  the  merchandise 
account  with  the  same  amount,  we  should  experience  great  diffi- 
culty in  checking  back  to  find  the  error  unless  a  record  of 
the  transaction  had  been  made  in  some  other  book.  Hence 
the  need  of  at  least  two  books. 

The  functions  of  journals. — The  functions  of  journals  are 
to  record  business  transactions  in  chronological  order  so  as 
to  provide  a  permanent  record  of  business  transactions  and, 
at  the  same  time,  to  classify  business  transactions  in  the  terms 
of  debit  and  credit  so  as  to  facilitate  the  transferring  of  these 
items  to  their  respective  accounts  in  the  ledger.  One  or  more 
books  of  original  entry  are  used  for  recording  business  trans- 
actions. 

The  book  known  as  "The  Journal"  was  at  one  time  the  only 
book  of  original  entry  used.  In  it  were  entered  all  the  business 
transactions  classified  as  to  accounts  and  amounts  to  be  debited 
and  credited  in  the  ledger. 


I 


Illustration  No.  20 


l:2' 


f%<%^<^LfU^   Vi6»^<^w*,».*»y    X,  t*i  - 


■f •••■i 


!    '<&-A.*-^ 


'^  ^^"YZf^JL^  ^i-«-tu«L*/>i 


^. 


\- ^ 


^>i^A4.<,4,«x/ 


^  '^ 


M 


I rst: 


t'^:. 


1 

v/o 

! 

■/*« 

^«     • 

1 

-7* 


r-f 


*|T<  A*.a^A  AttJL- 


Ot0*a 


^0  •  • 


O^-     /».•. 


^4 


/:>«e. 


'nt~i"r1-^T 


tl 


rr^ 


^^4444+11 


-t-i — 


LECTURES     II-III 


21 


Technique  of  recording  business  transactions  in  the  journal. 

For  the  purpose  of  illustrating  the  technique  of  recording  busi- 
ness transactions  in  the  journal,  let  us  consider  the  first  seven 
transactions  in  January.     (Illustration  No.  20). 

Column  "a"  is  the  posting  reference  column.  In  it  is  recorded 
the  folio  of  the  account  in  the  ledger  to  which  the  item  is  trans- 
ferred. 

Column  "b"  is  the  classification  and  explanation  column.  In 
it,  the  accounts  to  be  debited  and  credited  are  classified,  and 
each  entry  is  supported  with  a  suitable  explanation. 

Column  "c"  is  the  debit  money  column.  In  it  are  written  the 
amounts  to  be  debited  to  accounts  in  the  ledger. 

Column  "d"  is  the  credit  money  column.  In  it  are  written  the 
amounts  to  be  credited  to  accounts  in  the  ledger. 

Observe : 

(i)  That  the  month  and  year  are  written  but  once  at  the 
top  of  each  page  ; 

(2)  That  the  number  of  the  day  is  written  on  a  line  by 
itself  in  the  middle  of  the  explanation  column. 

(3)  That  the  account  to  be  debited  is  written  close  to  the 
first  line  in  the  explanation  column;  the  amount  is  written  in 
the  debit  (first  money)  column. 

(4)  That  the  account  to  be  credited  always  follows  the  ac- 
count to  be  debited;  that  it  begins  about  one  inch  to  right  of 
the  debit  entry;  that  it  is  introduced  by  the  word  "to";  and 
that  the  amount  is  written  in  the  credit  (second  money)  column. 

(5)  That  each  entry  is  supported  with  a  suitable  explana- 
tion. 

The  word  "To"  which  is  used  to  separate  the  debits  from 
the  credits  may  be  eliminated  from  journal  entries.  It  is  used 
in  expressing  transactions  orally  without  the  use  of  the  terms 
debit  and  credit.  Thus  the  expression  "Cash  $10,000,  to  A. 
Reid,  Proprietor,"  means  the  account  first  mentioned  (cash) 
is  to  be  debited,  and  the  account  followed  by  the  wprd  "to" 
is  to  be  credited.  In  other  words,  the  word  "to"  separates  the 
accounts  to  be  debited  from  the  accounts  to  be  credited. 

The  process  of  recording  transactions  in  books  of  original 
entry  is  called  entering. 

The  process  of  expressing  transactions  in  journal  style  is 
called  journalizing. 

The  process  of  transferring  items  from  books  of  original 
entry  to  their  respective  accounts  in  "The  Udger"  is  called 
posting. 


r 


IINTENTIONAL  SECOND  EXPOSURE 


^IIMVWIOip 


Illustration  No.  20 


LECTURES     II-III 


/• 


21 


1 


,     I 


Technique  of  recording  business  transactions  in  the  journal.— 

For  the  purpose  of  illustrating  the  technique  of  recording  busi- 
ness transactions  in  the  journal,  let  us  consider  the  ifirst  seven 
transactions  in  January.     (Illustration  No.  20). 

Column  "a"  is  the  posting  reference  column.  In  it  is  recorded 
the  folio  of  the  account  in  the  ledger  to  which  the  item  is  trans- 
ferred. 

Column  "b"  is  the  classification  and  explanation  column  In 
It,  the  accounts  to  be  debited  and  credited  are  classified,  and 
each  entry  is  supported  with  a  suitable  explanation. 

Column  "c"  is  the  debit  money  column.  In  it  are  written  the 
amounts  to  be  debited  to  accounts  in  the  ledger. 

Column  "d"  is  the  credit  money  column.  In  it  are  written  the 
amounts  to  be  credited  to  accounts  in  the  ledger. 

Observe : 

(i)  That  the  month  and  year  are  written  but  once  at  the 
top  of  each  page  ; 

(2)  That  the  number  of  the  day  is  written  on  a  line  by 
Itself  m  the  middle  of  the  explanation  column. 

(3)  That  the  account  to  be  debited  is  written  close  to  the 
first  Ime  m  the  explanation  column;  the  amount  is  written  in 
the  debit  (first  money)  column. 

(4)  That  the  account  to  be  credited  always  follows  the  ac- 
count to  be  debited;  that  it  begins  about  one  inch  to  right  of 
the  debit  entry;  that  it  is  introduced  by  the  word  "to"-  and 
that  the  amount  is  written  in  the  credit  (second  money)  column 

(5)  That  each  entry  is  supported  with  a  suitable  explana- 
tion. ^ 

The  word  "To"  which  is  used  to  separate  the  debits  from 
the  credits  may  be  eliminated  from  journal  entries.  It  is  used 
in  expressing  transactions  orally  without  the  use  of  the  terms 
debit  and  credit.  Thus  the  expression  "Cash  $10,000,  to  A. 
Reid,  Proprietor,  means  the  account  first  mentioned  (cash) 
IS  to  be  debited,  and  the  account  followed  by  the  v^ord  "to" 
is  to  be  credited.  In  other  words,  the  word  "to"  separates  the 
accounts  to  be  debited  from  the  accounts  to  be  credited 

ent^v'tn^'T''  "^  ''^^'^^^^'^^^  items   from  books  of  original 


22 


BOOKKEEPING,   THEORY   AND    PRACTICE 


BUSINESS    CUSTOMS    AND    METHODS 

Introductory.— We  are  now  familiar  with  the  manner  in  which 
business  transactions  are  recorded  in  the  journal,  but  we  have 
yet  to  learn  the  sources  of  information  from  which  entries  are 
made  in  this  book.  Transactions  are  recorded  in  the  journal 
and  other  books  of  original  entry  from  memoranda  known  as 
business  papers  and  forms.  Illustrations  of  several  forms  and 
papers  used  in  business  will  be  found  in  Part  III  of  this  book. 

Recording  purchase  transactions.— Invoices  received  from 
creditors  covering  services  received  or  goods  purchased  are 
known  as  purchase  invoices.  Purchase  invoices  are  not  entered 
in  the  books  until  the  invoices  have  been  approved  as  to 
quantity,  quality,  prices,  extensions,  and  totals.  A  rubber  stamp 
is  usually  used  for  the  purpose  of  approving  invoices.  See 
Part  III. 

The  treatment  of  purchase  transactions  in  the  books  of  ac- 
count depends  upon  whether  the  transaction  is  for  cash  or  on 
account,  i.e.,  whether  payment  is  to  be  made  immediately  or 
at  some  future  time. 

As  a  rule,  accounts  are  kept  in  the  ledger  for  such  creditors 
only  from  whom  we  purchase  on  account,  i.e.,  it  is  not  cus- 
tomary to  keep  in  the  ledger  accounts  for  creditors  whose  in- 
voices are  paid  immediately  when  received. 

If  payment  is  to  be  made  immediately,  as  is  usually  the  case 
with  invoices  covering  rent,  lighting,  and  telephone  service, 
only  one  double  entry  is  made.  The  procedure  in  this  case  is 
as  follows:  after  the  invoice  is  properly  approved,  a  check  is 
drawn;  the  payment  is  then  recorded  in  a  book  of  original 
entry ;  and  the  invoice  is  placed  in  a  "Paid  Invoice"  file.  The 
record  in  the  book  of  original  entry  is  made  from  the  check 
stub.  It  is  customary  when  an  entry  is  made  from  the  check 
stub,  to  indicate  by  some  symbol  that  the  payment  has  been 
entered  in  a  book  of  account.  This  is  usually  done  by  making 
a  check  mark  ( V )  to  the  right  of  the  amount  on  the  check  stub. 

If  payment  is  to  be  made  at  some  future  time,  i.e.,  if  the 
transaction  is  on  a/c,  two  double  entries  are  made.  The  pro- 
cedure in  this  case  is  as  follows :  after  the  invoice  is  properly 
approved,  it  is  recorded  in  a  book  of  original  entry  and  placed 
in  an  "Unpaid  Invoice"  file;  when  payment  is  to  be  made,  a 
check  is  drawn  and  the  payment  is  recorded  in  a  book  of  orig- 
inal entry.     The  source  of  information   from  which  the  first 


r 


i 


LECTURES     IMII 


23 


entry  is  made  is  the  invoice  received  from  the  creditor;  the 
source  of  information  from  which  the  second  entry  is  made  is 
the  check  stub. 

Let  us  assume  for  the  purpose  of  illustration  that  we  pur- 
chase merchandise  in  the  amount  of  $50  from  J.  Smith  for 
cash.  In  this  case,  only  one  double  entry  is  necessary.  Ex- 
pressed in  account  form,  the  double  entry  is  as  follows: 


Illustration  No.  21 


Merchandise 


Cash 


$50 


$50 


If,  however,  the  purchase  is  on  account,  two  double  entries 
are  necessary.  The  first  entry  is  made  on  receipt  of  the  in- 
voice; the  second  entry  is  made  on  paying  the  invoice.  Ex- 
pressed in  account  form,  the  double  entries  are  as  follows : 


Illustration  No.  22 


Merchandise 


Cash 


(I) 


$50 


$50    (2) 


J.  Smith 


(2) 


$50 


$50      (I) 


Note  that  the  numbers  indicate  the  double  entries  made. 

Recording  sales  transactions.- When  goods  are  shipped  to  a 
customer  on  a/c,  it  is  customary  for  the  shipping  department 
to  issue  a  memorandum  known  as  a  "Shipping  Ticket"  or 
"Charge  Ticket."  Among  other  things,  the  Shipping  Ticket 
shows  the  quantity,  units,  and  description  of  goods  shipped; 
the  name  and  address  of  the  consignee ;  and  how  the  shipment 
was  routed. 

The  Shipping  Ticket  is  the  source  of  information  from  which 
the  sales  invoice  is  written  and  the  entry  is  made  in  the  books. 

When  a  check  is  received  from  a  customer,  an  entry  is  first 
made  in  the  journal  or  cash  journal ;  it  is  then  recorded  on  the 
deposit  side  of  the  check  stub,  endorsed,  listed  on  a  deposit 


Il 


4i 


24 


BOOKKEEPING.   THEORY   AND    PRACTICE 


II 


II 


slip,  and  deposited  at  the  bank.     For  the  form  of  the  deposit 
slip  and  the  endorsements,  see  Part  III. 

QUESTIONS 

(i)     Define  double  entry  bookkeeping. 

(2)  Does  double  entry  mean  that  the  same  number  of  ac- 
counts must  be  debited  and  credited  for  each  transaction?  Ex- 
plain. 

(3)  When  is  the  "Merchandise  Account"  debited?  When 
is  it  credited  ? 

(4)  When  is  the  "Cash  Account"  debited?  When  is  it 
credited  ? 

(5)  What  is  the  nature  of  the  items  charged  to  the  "Ex- 
pense Account"  ? 

(6)  Which  of  the  following  transactions  should  be  charged 
to  the  "Expense  Account"?    Why? 

(a)  Received  invoice  from  Dean  &  Co.,  in  amount  $30,  cover- 

ing purchase  of  an  electric  fan. 

(b)  Paid  by  check,  J.  D.  Full  for  repairs  to  desk,  $10. 

(c)  Paid  by  check,  A.  L.  Dunn  for  ice,  $5. 

(d)  Paid  by  check.  Crystal  Co.  for  spring  water,  $10. 

(e)  Paid  by  check.  Burroughs  Adding  Machine  Co.,  for  adding 

machine,  $150. 

(f)  Paid  by  check,  Collins  &  Co.,  for  filing  cabinet,  $50. 

(7)  Should  we  violate  a  principle  of  bookkeeping,  if  we 
were  to  record  transactions  as  they  occur,  directly  in  accounts 
in  the  ledger? 

(8)  In  what  order,  as  to  accounts  to  be  debited  and  credited 
in  the  ledger,  do  we  record  transactions  in  "The  Journal"  ? 

(9)  What  do  the  following  expressions  indicate,  as  to  (a) 
accounts  to  be  debited  and  credited  in  the  ledger,  (b)  as  to  the 
nature  of  the  transaction : 

(a)  Cash  $500,  to  John  Doe. 

(b)  Expense  $10,  to  Cash. 

(c)  Merchandise  $2,000,  to  Field  &  Co. 

(d)  Cash,  $1,960,  Expense  $40,  (Discount)  to  John  Doe,  $2,000. 

(e)  Field  &  Co.,  $1,000,  to  Cash  $980,   Interest  and  Discount 

Earned,  $20. 

(f)  Cain  &  Co.,  $1,000,  to  Merchandise. 

(g)  Furniture  and  Fixtures,  $25,  to  Cash, 
(h)     Furniture  and  Fixtures,  $200,  to  O.  Bliss. 


LECTURES     II-III 


2S 


(10)  What  is  the  source  of  information  from  which  entries 
are  made  in  the  books  of  account  for  each  of  the  following 
transactions : 


(a)  A  purchase  on  account. 

(b)  Payments  made. 

(c)  A  sale  on  account. 

(d)  Payments  received. 


I 


( 


I 


LECTURE    IV 

THE  LEDGER 

Introductory. — In  Lecture  I,  we  explained  that  accounts  are 
kept  so  that  all  related  debits  and  credits  may  be  collected  under 
proper  titles.  The  ledger  is  the  book  in  which  accounts  are 
kept. 

Ledger  defined. — The  ledger  is  a  book  of  account  in  which 
provision  is  made  for  the  summation  and  the  classification  of 
all  the  debits  and  credits  recorded  in  the  books  of  the  original 
entry. 

The  ledger  is  known  as  a  book  of  final  entry  because  it  is 
an  established  rule  of  bookkeeping  that  all  entries  in  the  ledger 
must  be  "posted,"  i.e.,  transferred  from  a  journal  and  never 
made  direct. 

Function  of  the  ledger.— The  function  of  the  books  that  we 
call  ledgers  is  to  summarize  in  accounts  all  transactions  recorded 
in  the  journals,  so  that  the  profit  or  loss  and  financial  condition 
of  the  business  may  be  ascertained. 

We  are  now  familiar  with  the  technique  of  recording  trans- 
actions in  the  book  known  as  "The  Journal."  We  also  under- 
stand that  all  transactions  recorded  in  books  of  original  entry 
such  as  "The  Journal"  must  be  transferred  to  their  proper 
accounts  in  the  ledger.    We  are  now  to  learn  how  this  is  done. 

Posting  defined. — Posting  is  the  process  of  transferring  items 
from  journals  to  their  proper  accounts  in  the  ledger. 

Items  recorded  as  debits  in  books  of  original  entry  (journals) 
must  be  transferred  to  the  debit  side  of  accounts  in  the  ledger; 
items  recorded  as  credits  must  be  transferred  to  the  credit  side 
of  accounts  in  the  ledger. 

Technique  of  posting.— For  the  purpose  of  illustrating  the 
technique  of  posting,  let  us  consider  the  first  journal  entry 
made  in  the  practice  set.  See  Illustration  No.  23.  The  condi- 
tion of  the  accounts  affected  after  posting  this  journal  entry  is 
also  shown  in  Illustration  No.  23. 

Note  that  the  numbers  in  parentheses  indicate  the  folios  of 
the  accounts  in  the  ledger. 


26 


Illustration  No.  23 


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i 


INTENTIONAL  SECOND  EXPOSURE 


Illustration  No.  2S 


Iti 


N 


M 


I 


LECTURE  IV 

THE  LEDGER 

Introductory.— In  Lecture  I,  we  explained  that  accounts  are 
kept  so  that  all  related  debits  and  credits  may  be  collected  under 
proper  titles.  The  ledger  is  the  book  in  which  accounts  are 
kept. 

Ledger  defined.— The  ledger  is  a  book  of  account  in  which 
provision  is  made  for  the  summation  and  the  classification  of 
all  the  debits  and  credits  recorded  in  the  books  of  the  original 
entry. 

The  ledger  is  known  as  a  book  of  final  entry  because  it  is 
an  established  rule  of  bookkeeping  that  all  entries  in  the  ledger 
must  be  "posted,"  i.e.,  transferred  from  a  journal  and  never 
made  direct.  * 

Function  of  the  ledger.— The  function  of  the  books  that  we 
call  ledgers  is  to  summarize  in  accounts  all  transactions  recorded 
in  the  journals,  so  that  the  profit  or  loss  and  financial  condition 
of  the  business  may  be  asce;rtained. 

We  are  now  familiar  with  the  technique  of  recording  trans- 
actions in  the  book  known  as  "The  Journal."  We  also  under- 
stand that  all  transactions  recorded  in  books  of  original  entry 
such  as  "The  Journal"  must  be  transferred  to  their  proper 
accounts  in  the  ledger.    We  are  now  to  learn  how  this  is  done. 

Posting  defined.— Posting  is  the  process  of  transferring  items 
from  journals  to  their  proper  accounts  in  the  ledger. 

Items  recorded  as  debits  in  books  of  original  entry  (journals) 
nlust  be  transferred  to  the  debit  side  of  accounts  in  the  ledger ; 
items  recorded  as  credits  must  be  transferred  to  the  credit  side 
of  accounts  in  the  ledger. 

Technique  of  posting.— For  the  purpose  of  illustrating  the 
technique  of  posting,  let  us  consider  the  first  journal  entry 
made  in  the  practice  set.  See  Illustration  No.  23.  The  condi- 
tion of  the  accounts  affected  after  posting  this  journal  entry  is 
also  shown  in  Illustration  No.  23. 

Note  that  the  numbers  in  parentheses  indicate  the  folios  of 
the  accounts  in  the  ledger. 


26 


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I 


LECTURE   IV 


27 


Ik.... 

I 


Observe : 

(i)     That  the  account  title  is  written  in  the  center  of  the 
page. 

^  (2)  That  the  date  of  entry  as  recorded  in  "The  Journal^' 
IS  written  in  the  date  column  in  the  ledger.  The  number  of  the 
year  is  written  in  the  month  column  but  not  on  a  separate  line. 

(3)  That  the  complementary  account  is  written  in  the  ex- 
planation column. 

(4)  That  the  initial  and  folio  of  the  book  from  which  the 
Item  is  transferred  is  written  in  the  posting  reference  column. 

(5)  That  the  amount  is  written  in  the  money  column. 

(6)  That,  when  an  item  is  transferred  to  its  account  in 
the  ledger,  we  so  mdicate  in  "The  Journal"  by  writing  the 
ledger  folio  in  the  column  originally  intended  for  the  number 
of  the  day. 

The  procedure  is  first  to  make  the  entry  in  the  ledger  and 
then  to  mdicate  in  "The  Journal,"  in  the  manner  just  described 
that  the  item  has  been  transferred.  * 

In  Illustration  No.  24,  A,  B,  C,  D,  is  shown  the  condition 
of  accounts  in  the  ledger  after  posting  the  January  transac- 
tions. 

Complementary  account  defined.— A  complementary  account 
IS  an  account  that  is  debited  at  the  time  another  account  is 
credited  and  vice  versa. 

Theoreticafly  a  ledger  account  is  incomplete  if  the  explana- 
.  tion  columns  do  not  contain  the  complementary  accounts.  Thus 
If  postings  are  made  to  the  debit  side  of  any  account,  the  ex- 
planation column  of  that  account  should  contain  the  names  of 
the  complementary  accounts  that  were  credited.  When  the 
double  entry  consists  of,  say,  one  debit  and  four  credits,  the 
word  sundry"  is  written  in  the  explanation  column  of  the 
account  debited,  indicating  that  several  accounts  were  credited 

The  advantage  in  writing  the  complementary  account  in  the 
explanation  column  when  posting  to  the  ledger,  is  that  the 
double  entry  made  for  any  transaction  can  be  determined  with- 
out reference  to  the  books  of  original  entry.  In  spite  of  this 
advantage,  the  tendency  is  to  ignore  the  explanations 

Practical  suggestion.-Let  us  consider  the  account  presented 
in  Illustration  No.  25.  Observe,  that  as  a  result  of  writing  the 
name  of  the  complementary  account  of  each  transaction  in  the 
explanation  column  when  posting,  we  are  in  a  position  to  tell 
which  double  entry  was  made  for  each  transaction 


|] 


»ll 


J 


INTENTIONAL  SECOND  EXPOSURE 


/ 


O 

Q 


li 


i 


LECTURE   IV 


27 


Observe : 

(i)     That  the  account  title  is  written  in  the  center  of  the 
page. 

^  (2)  That  the  date  of  entry  as  recorded  in  "The  Journal" 
is  written  in  the  date  column  in  the  ledger.  The  number  of  the 
year  is  written  in  the  month  column  but  not  on  a  separate  line. 

(3)  That  the  complementary  account  is  written  in  the  ex- 
planation column. 

(4)  That  the  initial  and  folio  of  the  book  from  which  the 
item  is  transferred  is  written  in  the  posting  reference  column. 

(5)  That  the  amount  is  written  in  the  money  column. 

(6)  That,  when  ^  an  item  is  transferred  to  its  account  in 
the  ledger,  we  so  mdicate  in  "The  Journal"  by  writing  the 
ledger  folio  in  the  column  originally  intended  for  the  number 
of  the  day. 

The  procedure  is  first  to  make  the  entry  in  the  ledger  and 
then  to  mdicate  in  "The  Journal,"  in  the  manner  just  described, 
that  the  item  has  been  transferred. 

In  Illustration  No.  24,  A,  B,  C,  D,  is  shown  the  condition 
of  accounts  in  the  ledger  after  posting  the  January  transac- 
tions. 

Complementary  account  defined.-A  complementary  account 
IS  an  account  that  is  debited  at  the  time  another  account  is 
credited  and  vice  versa. 

Theoreticafly  a  ledger  account  is  incomplete  if  the  explana- 
tion columns  do  not  contain  the  complementary  accounts  Thus 
If  postings  are  made  to  the  debit  side  of  any  account,  the  ex- 
planation column  of  that  account  should  contain  the  names  of 
the  complementary  accounts  that  were  credited.  When  the 
double  entry  consists  of,  say,  one  debit  and  four  credits,  the 
word  sundry"  is  written  in  the  explanation  column  of  the 
account  debited,  indicating  that  several  accounts  were  credited 

The  advantage  in  writing  the  complementary  account  in  the 
explanation  column  when  posting  to  the  ledger,  is  that  the 
double  entry  made  for  any  transaction  can  be  determined  with- 
out reference  to  the  books  of  original  entry.  In  spite  of  this 
advantage,  the  tendency  is  to  ignore  the  explanations. 

Practical  suggestion.-Let  us  consider  the  account  presented 
in  Illustration  No.  25.  Observe,  that  as  a  result  of  writing  the 
name  of  the  complementary  account  of  each  transaction  in  the 
explanation  column  when  posting,  we  are  in  a  position  to  tell 
which  double  entry  was  made  for  each  transaction 


I' 


I 


BOOKKEEPING,    THEORY   AND    PRACTICE 


I 


I 


Let  it  be  assumed  that  the  cash  received  on  Jan.  lo  and  15, 
was  in  payment  of  invoice  of  Jan.  5 ;  that  the  cash  received  on 
Jan.  22,  was  in  payment  of  invoice  of  Jan.  12 ;  and  that  the 
cash  received  on  Jan.  28,  was  in  payment  of  invoice  of  Jan.  18. 

We  must  mark  each  payment  as  it  is  received,  either  by  let- 
ter as  was  done  above  or  by  some  other  symbol,  so  that  we 
may  know  against  what  invoice  the  payment  applies. 

Unless  we  do  so  mark  each  payment  received  and  the  invoices 
paid,  we  shall  experience  difficulty  in  calling  our  customer's 
attention  to  the  unpaid  invoices. 

Note  that,  as  a  result  of  marking  the  payments  received  and 
the  invoices  paid,  we  are  in  a  position  to  tell  not  only  what 
invoices  remain  unpaid  but  also  what  invoices  have  been  paid 
and  when  they  have  been  paid. 

Transferring  and  Ruling  Accounts. — The  technique  of  trans- 
ferring accounts  from  one  section  or  page  to  another  and  of 
ruling  accounts  is  illustrated  in  Illustration  No.  51. 

Footing  Ledger  Accounts. — Both  sides  of  each  ledger  ac- 
count are  footed  at  intervals  or,  at  least,  at  the  end  of  each 
month.  The  footings  on  each  side  are  written  in  small,  pen- 
cilled figures  beneath  the  last  amount — but  not  on  the  next  line. 
See  illustration  No.  25. 

The  ledger  accounts  are  footed  at  the  end  of  each  month  pre- 
paratory to  taking  a  trial  balance  of  the  ledger. 

TRIAL    BALANCE 

Trial  balance  defined. — ^''A  trial  balance  is  a  statement  of  the 
ledger  accounts  prepared  after  the  books  of  a  concern  have 
been  posted  up,  but  before  the  closing  entries  are  made.  It 
shows  in  two  parallel  money  columns  either  the  total  of  the 
debit  side  and  the  total  of  the  credit  side  of  each  ledger  account, 
or  the  differences  between  the  debit  side  and  the  credit  side  of 
each  ledger  account."    (Lisle.) 

Method  used  in  practice. — In  practice,  however,  it  is  the  cus- 
tom in  preparing  a  trial  balance  to  take  the  difference  between 
the  debit  side  and  the  credit  side  of  each  ledger  accotmt  and 
then  to  total  these  differences. 

The  object  in  taking  a  trial  balance. — The  object  in  taking 
a  trial  balance  is  to  prove  the  mathematical  accuracy  of  the 
ledger;  i.e.,  to  prove  whether  the  total  debit  balances  of  ac- 
counts open  in  the  ledger,  are  equal  to  the  total  credit  balances. 


LECTURE    IV 


29 


The  procedure  in  taking  a  trial  balance.— The  procedure  in 
taking  a  trial  balance  is  as  follows : 

(i)  Put  a  heading  on  the  trial  balance  sheet,  which  may 
consist  either  of  sheets  of  standard,  ruled  journal  or  ledger 
paper,  or  of  specially  ruled  sheets  or  books. 

(2)  Foot  both  sides  of  each  ledger  account,  writing  the 
totals  in  small,  pencilled  figures  beneath  the  last  amount— but 
not  on  the  next  line.  The  balance  of  each  account  should  be 
written  in  small,  pencilled  figures  in  the  explanation  column. 
The  debit  balances  are  written  on  the  debit  side;  the  credit 
balances  on  the  credit  side.  This  operation,  and  the  one  which 
follows,  should  be  performed  in  the  order  here  given. 

(3)  On  the  trial  balance  sheet,  list  every  account  that  has  a 
balance,  writing  the  folio,  title  of  the  account,  and  the  amount 
on  the  same  line.  The  amount  of  a  debit  balance  is  written  in 
the  debit  column;  that  of  a  credit  balance  is  written  in  the 
credit  column. 

(4)  Ignore  accounts  that  are  in  balance.  An  account  is  in 
balance  when  the  total  of  the  debit  side  equals  the  total  of  the 
credit  side. 

(5)  Foot  the  columns  on  the  trial  balance  sheet.  If  the 
total  of  the  debit  column  is  equal  to  the  total  of  the  credit 
column,  the  ledger  is  said  to  be  in  balance  and  it  is  then  as- 
sumed that  all  postings  have  been  correctly  made. 

If  the  totals  of  the  trial  balance  are  not  in  agreement,  it  is 
apparent  that  one  or  more  errors  have  been  made  which'  must 
be  found. 

Finding  errors.— There  are  a  few  short-cut  methods  for  find- 
ing errors  in  a  trial  balance.  These  methods,  however,  cannot 
be  applied  when  more  than  one  error  has  been  made. 

When  the  difference  between  the  trial-balance  totals  is  not 
an  apparent  error  in  addition  or  subtraction,  it  may  be  due  to 
the  failure  to  post  one  amount,  in  which  case  the  "error  may 
be  quickly  found  by  going  over  the  books  of  original  entry  and 
looking  for  the  amount  of  the  difference. 

If  the  amount  of  the  difference  is  divisible  by  2,  the  error 
may  be  the  result  of  having  posted  an  item  to  the  debit  side 
of  an  account  instead  of  to  the  credit  side,  or  vice  versa.  Such 
errors  may  be  quickly  found  by  going  over  the  books  of  orig- 
inal entry  and  looking  for  an  amount  equal  to  half  the  amount 
of  the  difference.  The  operations  explained  in  this  and  in  the 
precedmg  paragraph  should  be  done  at  the  same  time 


^\ 


P 


JO 


BOOKKEEPING,   THEORY  AND   PRACTICE 


If  the  amount  of  the  difference  is  divisible  by  9,  the  error 
may  be  due  to  a  transposition  of  figures.  Such  errors,  how- 
ever, are  more  quickly  found  by  checking  back  the  postings. 

If  the  difference  is,  say,  $100,  or  any  decimal  thereof,  the 
error  is  m  all  probability  one  of  addition  or  subtraction     Such 
errors  are  frequently  made  in  footing  books  of  original  entry 
ledger  accounts,  trial  balances,  and  in  extracting  ledger  balances! 
Therefore,  before  any  attempt  is  made  to  apply  short-cut 
methods,  the  ledger  accounts  should  be  gone  over  carefully  and 
all  amounts  on  the  trial-balance  sheet,  including  the  totals,  should 
be  checked.     The  short-cut  methods  should  then  be  applied- 
and,  If  the  error  is  not  then  found,  postings  should  be  checked' 
Before  changing  the  trial-balance  figures,  care  should  be  taken 
to  make  m  the  ledger  the  necessary  corrections  of  errors  found. 
Some  errors  which  a  trial-balance  wiU  not  reveal.— A  ledger 
may  be  m  balance  and  yet  be  incorrect  because  of  errors  which 
might  have  been  made  and  which  are  not  revealed  by  the  trial- 
balance.    Examples  of  such  errors  are : 

(1)  The  incorrect  designation  in  the  books  of  original  entrv 
of  the  account  to  be  debited  or  credited. 

(2)  The  incorrect  statement  in  the  books  of  original  entrv 
of  the  amounts  to  be  debited  and  credited. 

(3)  The  failure  to  record  a  transaction  in  the  books  of 
onginal  entry. 

(4)  The  failure  to  post  an  entire  transaction. 

(5)  The  posting  of  an  item  to  the  wrong  account. 

(6)  The  reversing  of  the  items  when  posting. 

(7)  An  error  in  footing  the  debit  side  of  one  account  offset 
by  a  similar  error  of  the  same  amount  in  footing  the  credit  side 
ot  the  same  or  another  account. 

A  trial  balance  of  the  ledger  as  shown  in  Illustration  No  24  is 
given  in  Illustration  No.  26.  ' 


CI) 

(2) 

(3) 

U) 
chant : 


QUESTIONS 
Define  Ledger. 

Define  Account. 

What  is  meant  by  "posting"? 

The  following  account  appears  in  the  ledger  of  a  mer- 


Illustration  No.  26 


^/,  /f « 


i 


INTENTIONAL  SECOND  EXPOSURE 


I 


JO 


BOOKKEEPING,   THEORY  AND   PRACTICE 


If  the  amount  of  the  difference  is  divisible  by  9  the  error 
may  be  due  to  a  transposition  of  figures.  Such  er'rors,  how- 
ever, are  more  quickly  found  by  checking  back  the  postings. 

If  the  difference  is,  say,  $100,  or  any  decimal  thereof,  the 
error  is  m  all  probability  one  of  addition  or  subtraction     Such 
errors  are  frequently  made  in  footing  books  of  original  entry 
ledger  accounts,  trial  balances,  and  in  extracting  ledger  balances' 
Therefore,  before  any  attempt  is   made  to  apply   short-cut 
methods,  the  ledger  accounts  should  be  gone  over  carefully  and 
all  amounts  on  the  trial-balance  sheet,  including  the  totals,  should 
be  checked.     The  short-cut  methods  should  then  be  applied- 
and,  if  the  error  is  not  then  found,  postings  should  be  checked' 
Before  changing  the  trial-balance  figures,  care  should  be  taken 
to  make  m  the  ledger  the  necessary  corrections  of  errors  found 
Some  errors  which  a  trial-balance  wiU  not  reveaL— A  ledger 
may  be  m  balance  and  yet  be  incorrect  because  of  errors  which 
might  have  been  made  and  which  are  not  revealed  by  the  trial- 
balance.    Examples  of  such  errors  are : 

(1)  The  incorrect  designation  in  the  books  of  original  entry 
of  the  account  to  be  debited  or  credited. 

(2)  The  incorrect  statement  in  the  books  of  original  entry 
ot  the  amounts  to  be  debited  and  credited. 

(3)  The  failure  to  record  a  transaction  in  the    books    of 
original  entry. 

(4)  The  failure  to  post  an  entire  transaction. 

(5)  The  posting  of  an  item  to  the  wrong  account. 

(6)  The  reversing  of  the  items  when  posting. 

(7)  An  error  in  footing  the  debit  side  of  one  account  offset 
by  a  similar  error  of  the  same  amount  in  footing  the  credit  side 
ot  the  same  or  another  account. 

A  trial  balance  of  the  ledger  as  shown  in  Illustration  No.  24  is 
given  in  Illustration  No.  26. 


CO 
(2) 

(3) 

chant : 


QUESTIONS 
Define  Ledger. 

Define  Account. 

What  is  meant  by  "posting"? 

The  following  account  appears  in  the  ledger  of  a  mer- 


Illustration  No.  26 


v>yL<«l*.«^  /</-<i^ 


4.    X>.^i^u^ 


^lU^Wi^fc*    "^^ai 


-uV    «^'S  ^^^ 


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,15 


X9.— ^^ 


/J  .eU^ 


4 


\ 


LECTURE    IV 


31 


JAMES    CARROLL 


19— 

Jan.   2 

Mdse. 

J.ia 

3 

« 

J.ia 

8 

« 

J.3b 

10 

« 

J-3 

$1,000 

500 

1500 

800 


19— 

Jan.   12    Cash  C.2a 

20    Mdse.  J.5b 

25    Cash  C.4b 

on  ac. 

28    Cash  C.4b 


$1500 
200 
500 

800 


(a)  What  is  the  balance  of  the  account?  What  does  it 
represent  ? 

(b)  How  many  books  of  original  entry  were  used  according 
to  this  account? 

(c)  What  was  the  nature  of  each  transaction?  And,  what 
was  the  complementary  entry  made  for  each  amount  debited 
and  credited  to  this  account? 

(d)  Against  what  invoice  does  each  payment  received  apply  ? 


(5) 
(a) 
(b) 
(c) 
(d) 
(e) 


What  is  a  trial  balance? 
When  is  a  trial  balance  usually  compiled? 
What  does  it  prove? 

Name  two  short-cut  methods  for  finding  errors. 
Can  short-cut  methods  be  applied    if    more    than    one 
error  has  been  made? 

(f)     Name  five  errors  which  are  not  revealed  by  the  trial 
balance. 


LECTURE    V 


I 


CASH    JOURNAL 

Cash  journal  defined. — A  cash  journal  is  a  book  of  original 
entry  in  which  are  recorded  cash  receipts  and  cash  payments. 

Form  of  the  cash  joumaL — The  cash  journal  is  divided  into 
two  sides ;  viz.,  the  receipt  side  and  the  payment  side.  The  left- 
hand  side  of  each  double  page  is  used  for  recording  cash  re- 
ceipts, and  the  right-hand  side  is  used  for  recording  cash  pay- 
ments. Provision  is  usually  made  on  each  side  of  the  cash 
journal  for  the  following:  date,  account,  explanation,  post- 
ing reference,  and  several  money  columns.  The  nimiber  of 
money  columns  varies  to  meet  the  individual  needs.  Hence,  in 
practice,  we  very  seldom  find  two  cash  books  that  are  exactly 
alike. 

Methods  of  recording  cash  receipts  and  pa3mients. — Although 
the  forms  of  cash  books  vary,  yet,  as  to  the  method  of  record- 
ing receipts  and  payments,  they  are  all  alike,  in  that  cash 
receipts  are  always  recorded  on  the  left-hand  side  and  cash 
payments  are  always  recorded  on  the  right-hand  side,  except 
when  separate  journals  are  used,  one  for  cash  receipts,  and 
one  for  cash  payments. 

When  a  special  journal,  such  as  the  "Cash  Journal,"  is  intro- 
duced, cash  receipts  and  cash  payments  are  no  longer  recorded 
in  "The  Journal,"  but  instead  are  recorded  in  the  "Cash  Jour- 
nal" from  which  they  are  posted  to  accounts  in  the  ledger. 

We  have  already  learned  that  "The  Journal"  was  at  one  time 
the  only  book  of  original  entry  used.  But,  when  business  began 
to  be  conducted  on  a  larger  scale  and  transactions  became  more 
numerous,  thus  making  it  impossible  for  one  man  to  record  all 
the  transactions,  it  was  found  necessary  to  introduce  special 
journals,  such  as  the  "Cash  Journal." 

Advantages  of  the  cash  journal. — The  introduction  of  a  special 
journal,  such  as  the  "Cash  Journal,"  has  the  advantage  of 
enabling  more  than  one  man  to  work  on  the  books  at  the  same 
time.  While  one  is  engaged  in  recording  cash  receipts  and 
cash  payments  in  the  "Cash  Journal,"  the  other  may  be  engaged 
in  recording  sales  and  purchases  in  "The  Journal,"  or  in  post- 
ing to  the  ledger. 


I 


32 


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LECTURE    V 


33 


Furthermore,  with  the  introduction  of  special  journals,  the 
amount  of  mechanical  labor  theretofore  necessary  in  posting 
was  greatly  reduced.  This  reduction  is  due  to  the  fact  that, 
by  recording  all  cash  receipts  and  cash  payments  in  a  separate 
book,  we  no  longer  post  the  individual  cash  receipts  and  pay- 
ments to  the  cash  account  in  the  ledger,  as  was  done  in  January. 
Instead,  we  make  at  the  end  of  each  month  but  one  posting  to 
the  debit  side  of  the  cash  account  in  the  ledger  of  the  total  cash 
received,  and  one  posting  to  the  credit  side  of  the  cash  account 
in  the  ledger  of  the  total  cash  paid. 

The  technique  of  recording  cash  receipts  and  pa5mients.— In 
order  to  illustrate  the  technique  of  recording  transactions  in 
the  cash  journal  and  posting  to  accounts  in  the  ledger,  Feb- 
ruary transactions,  i.e.,  cash  receipts  and  payments  have  been 
used  (Illustration  No.  2y). 

Observe  on  the  receipt  side  of  the  cash  journal: 

(i)  That  the  actual  amount  of  cash  received  is  entered  in 
the  net  cash  column. 

(2)  That  the  amount  df  discount  deducted  by  customers  is 
entered  in  the  interest  and  discount  column. 

(3)  That  the  gross  amount  of  the  invoice  is  entered  in  the 
general  column  for  posting  to  the  credit  of  the  customers'  ac- 
count in  the  general  ledger. 

(4)  That  the  total  of  the  net  cash,  and  interest  and  discount 
columns  is  equal  to  the  total  of  the  general  column,  thus  prov« 
mg  that  a  double  entry  was  made  for  each  transaction. 

(5)  That,  at  the  end  of  the  month,  the  net  cash  column  is 
posted  in  total  to  the  debit  of  Cash  Account  in  the  ledger. 

(6)  That,  at  the  end  of  the  month,  the  interest  and  discount 
column  is  posted  in  total  to  the  debit  of  Expense  Account  in 
the  ledger. 

(7)  That  postings  from  the  general  column  are  made  in 
detail  to  the  credit  of  accounts  in  the  ledger.  In  practice, ^hese 
postings  are  made  daily. 

Observe  on  the  payment  side  of  the  cash  journal : 
(i)     That  the  actual  amount  of  cash  paid  is  entered  in  the 
net  cash  column. 

(2)  That  the  amount  of  discount  deducted  by  us  is  entered 
in  the  interest  and  discount  column. 

(3)  That  the  gross  amount  of  the  invoice  is  entered  in  the 
general  column  for  posting  to  the  debit  of  the  creditors'  ac- 
counts in  the  general  ledger. 


7 


'-1 


1 1 


INTENTIONAL  SECOND  EXPOSURE 


I 


o 

««) 


1 


LECTURE   V 


33 


Furthermore,  with  the  introduction  of  special  journals,  the 
amount  of  mechanical  labor  theretofore  necessary  in  posting 
was  greatly  reduced.  This  reduction  is  due  to  the  fact  that, 
by  recording  all  cash  receipts  and  cash  payments  in  a  separate 
book,  we  no  longer  post  the  individual  cash  receipts  and  pay- 
ments to  the  cash  account  in  the  ledger,  as  was  done  in  January. 
Instead,  we  make  at  the  end  of  each  month  but  one  posting  to 
the  debit  side  of  the  cash  account  in  the  ledger  of  the  total  cash 
received,  and  one  posting  to  the  credit  side  of  the  cash  account 
m  the  ledger  of  the  total  cash  paid. 

The  technique  of  recording  cash  receipts  and  payments.— In 
order  to  illustrate  the  technique  of  recording  transactions  in 
the  cash  journal  and  posting  to  accounts  in  the  ledger,  Feb- 
ruary transactions,  i.e.,  cash  receipts  and  payments  have  been 
used  (Illustration  No.  2y). 

Observe  on  the  receipt  side  of  the  cash  journal : 

(1)  That  the  actual  amount  of  cash  received  is  entered  in 
the  net  cash  column. 

(2)  That  the  amount  of  discount  deducted  by  customers  is 
entered  m  the  interest  and  discount  column. 

(3)  That  the  gross  amount  of  the  invoice  is  entered  in  the 
general  column  for  posting  to  the  credit  of  the  customers'  ac- 
count m  the  general  ledger. 

(4)  That  the  total  of  the  net  cash,  and  interest  and  discount 
columns  is  equal  to  the  total  of  the  general  column,  thus  prov^ 
mg  that  a  double  entry  was  made  for  each  transaction 

(5)  That,  at  the  end  of  the  month,  the  net  cash  column  is 
posted  in  total  to  the  debit  of  Cash  Account  in  the  ledger 

(6)  That,  at  the  end  of  the  month,  the  interest  and  discount 

t'heTd  Z  ^         '"  '""^^^  '"^  '^^  "^"^^^  ""^  ^''P'"'^  "^"^^""^  ''' 

(7)  That  postings  from  the  general  column  are  made  in 
detail  to  the  credit  of  accounts  in  the  ledger.  In  practice,^ these 
postings  are  made  daily. 

Observe  on  the  payment  side  of  the  cash  journal  : 

(1)  That  the  actual  amount  of  cash  paid  is  entered  in  the 
net  cash  column. 

(2)  That  the  amount  of  discount  deducted  by  us  is  entered 
in  the  interest  and  discount  column. 

(3)  That  the  gross  amount  of  the  invoice  is  entered  in  the 
general  column  for  posting  to  the  debit  of  the  creditors'  ac- 
counts in  the  general  ledger. 

8 


34 


BOOKKEEPING.   THEORY   AND    PRACTICE 


f 


(4)  That  the  total  of  the  net  cash,  and  interest  and  discount 
columns  is  equal  to  the  total  of  the  general  column,  thus  prov- 
ing that  a  double  entry  was  made  for  each  transaction. 

(5)  That,  at  the  end  of  the  month,  the  net  cash  column  is 
posted  in  total  to  the  credit  of  Cash  Account  in  the  ledger. 

(6)  That,  at  the  end  of  the  month,  the  interest  and  discount 
column  is  posted  in  total  to  the  credit  of  Interest  &  Discount 
Earned  Account  in  the  ledger. 

(7)  That  postings  from  the  general  column  are  made  in 
detail  to  the  debit  of  accounts  in  the  ledger.  In  practice,  these 
postings  are  usually  made  daily. 

Balancing  the  cash  book.— The  cash  book  should  be  balanced 
periodically,  but  at  least  once  a  month.  It  is  usually  balanced 
at  the  end  of  each  month  by  adding  in  the  net  cash  column,  to 
the  total  cash  receipts  for  the  month,  the  cash  balance  at  the 
beginning  of  the  month,  and  adding  in  the  net  cash  column, 
to  the  total  payments  for  the  month,  the  cash  balance  at  the 
end  of  the  month.  The  balances  are  usually  written  in  red  ink 
to  indicate  that  the  amounts  were  inserted  to  make  both  sides 
equal,  i.e.,  balance. 

Sometimes  the  cash  balance  is  brought  forward  in  the  net 
cash  column  on  the  receipt  side  of  cash,  at  the  beginning  of 
the  month  instead  of  at  the  end  of  the  month.  It  is  sometimes 
brought  forward  at  the  beginning  of  the  month  in  both  the 
net  cash  and  general  columns  or  in  the  general  column  only. 

If  the  cash  balance  is  brought  forward  in  the  net  cash  column 
at  the  beginning  of  the  month,  the  total  of  that  column  at  the 
end  of  the  month  cannot  be  posted  to  the  Cash  Account  in  the 
ledger,  since  it  does  not  represent  the  total  cash  receipts  for 
the  month.  Thus  the  total  cash  receipts  must  be  ascertained 
at  the  end  of  the  month  before  the  cash  account  can  be  debited. 
This  is  done  by  preparing  a  statement  on  the  receipt  side  of  the 
cash  book  at  the  end  of  the  month. 

PETTY    CASH    JOURNAL 

Introductory.— It  has  become  the  practice  in  business  to  make 
all  payments  by  check  whenever  possible.  Payment  for  some 
transactions,  however,  can  be  made  in  currency  only.  Examples 
of  such  transactions  are  payments  for :  postage,  carfare,  ferry- 
mg  auto,  etc.  Cash  set  aside  for  such  purposes  is  called  "petty 
cash."  The  book  used  for  recording  petty  cash  receipts  and 
payments  is  called  the  "Petty  Cash  Journal." 


LECTURE    V 


35 


Form  of  the  petty  cash  joumaL— The  form  of  the  "Petty 
Cash  Journal"  varies  to  meet  individual  needs.  It  may  consist 
of  a  simple  book  of  standard  journal  ruling  in  which  receipts 
are  recorded  on  the  left-hand  side,  and  payments  on  the  right- 
hand  side  of  each  double  page ;  or,  it  may  take  the  form  of  a 
columnar  ruled  book  in  which  provision  is  made  for  the  amount 
received,  date,  explanation,  posting  reference,  amount  paid,  and 
numerous  distribution  columns. 

The  use  of  the  petty  cash  journal.- The  Petty  Cash  Journal 
may  be  used  as  an  auxiliary  book  or  as  a  book  of  account. 
It  IS  used  as  an  auxiliary  book  if  no  postings  are  made  from 
It  to  accounts  in  the  ledger.  It  is  used  as  a  book  of  account 
if  postmgs  are  made  from  it  to  accounts  in  the  ledger. 

The  use  of  the  petty  cash  journal  as  an  auxiliary  book.— 
Petty  cash  is  sometimes  treated  as  part  of  the  general  cash 
It  IS  so  treated  when  no  distinction  is  made  on  the  books  of 
account  between  cash  on  deposit  in  the  bank  and  petty  cash 
In  this  case,  only  one  account  is  kept  in  the  ledger,  viz.,  "Cash 
Account";  and  all  cash  received,  whether  deposited 'in  the  bank 
or  retamed  as  petty  cash,  and  all  cash  paid  out,  whether  by 
check  or  from  petty  cash,  is  recorded  in  the  "Cash  Journal  " 
from  which  postings  are  made  to  accounts  in  the  ledger 

The  Petty  Cash  Journal  in  such  cases  is  merely  used  as  an 
auxihary  book: 

Moneys  received  which  are  not  deposited  in  the  bank  but  are 
retained  as  petty  cash,  must  be  entered  in  the  "Petty  Cash 
Journar;  as  well  as  in  the  "Cash  Journal."  Checks  drawn  by 
the  business   itself  to  provide  petty  cash,  are   not  treated  as 
disbursements,   since  such   checks  represent  merely  a  transfer 
of  money  from  the  bank  to  the  cash  till  and  therefore  do  not 
decrease  the  amount  of  the  cash  balance.     Hence,  when  such 
checks  are  drawn    no  entry  is  made  on  the  payment  side  of 
the     Cash  Journal."    The  amount  received  when  the^check  is 
cashed  IS  recorded  on  the  receipt  side  of  the  Petty  Cash  Journal 
AH  payments  made  from  petty  cash  are  recorded  on  the  pav- 
ment  side  of  the  "Petty  Cash  Journal"    and    are    periodically 
(commonly  at  the  end  of  each  month)  entered  in  the  "Cash 
Journal    from  which  they  are  posted  to  accounts  in  the  ledger 
The  Petty  Cash  Journal  will  be  used  as  an  auxiliary  book 
m  recording  the  February  transactions.     Thereafter  it  will  be 
used  as  a  book  of  account. 


Ill 


36 


BOOKKEEPING,   THEORY    AND    PRACTICE 


Tlie  use  of  tlie  petty  cash  journal  as  a  book  of  account. — In 

every  properly  systematized  business,  all  cash  received,  whether 
in  the  form  of  currency,  checks,  or  money  orders,  is  deposited 
daily  at  the  bank,  and,  whenever  possible,  all  payments  are  made 
by  check.  Separate  accounts  are  also  kept  in  the  ledger  for 
"Cash"  and  for  "Petty  Cash."  When  separate  accounts  are 
kept  in  the  ledger,  the  "Cash  Account"  is  the  same  as  a  record 
of  our  dealings  with  the  bank.  Whenever  a  check  is  drawn 
for  petty  disbursements,  therefore,  an  entry  must  be  made  on 
the  payment  side  of  the  cash  journal,  debiting  "Petty  Cash 
Account"  and  crediting  "Cash  Account,"  so  as  to  record  the 
increase  of  cash  in  the  cash  till  and  the  decrease  of  cash  on 
deposit  with  the  bank. 

After  the  check  is  cashed  at  the  bank  and  the  currency  is 
received,  an  entry  is  made  on  the  receipt  side  of  the  petty  cash 
journal.  In  this  case  no  posting  is  made  from  the  receipt  side 
of  the  petty  cash  journal  to  accounts  in  the  ledger,  since  all 
receipts  of  petty  cash  are  limited  to  checks  drawn  for  that  pur- 
pose by  the  business  itself  and  since  the  necessary  entry  is 
made  on  the  payment  side  of  the  cash  journal  by  debiting 
"Petty  Cash"  and  crediting  "Cash"  at  the  time  the  check  is 
drawn. 

Payments  made  out  of  petty  cash  are  recorded  on  the  pay- 
ment side  of  the  petty  cash  journal,  from  which  book  they  are 
posted  to  the  debit  side  of  accounts  in  the  ledger.  The  total 
petty  cash  payments  are  posted  periodically  to  the  credit  of 
the  Petty  Cash  Account  in  the  ledger. 

Balancing  the  petty  cash  book. — The  petty  cash  book,  like 
the  cash  book,  should  be  balanced  at  least  once  a  month.  It 
is  balanced  by  adding  (in  red  ink),  to  the  payment  side,  the 
amount  of  the  balance  at  the  end  of  the  period.  The  balance 
of  petty  cash  at  the  end  of  the  period  is  determined  by  sub- 
tracting the  total  payments  from  the  total  receipts. 

DISCOUNTS 

Discotint  defined. — A  discount  is  deduction  from  the  amount 
of  a  list  price,  an  invoice,  or  a  note. 

Therefore,  discounts  may  be  divided  into  three  classes;  viz., 
trade  discotmt,  cash  discount,  and  bank  discount. 

Trade  discount  defined. — ^A  trade  discount  is  a  deduction  from 
the  list  price  of  an  article. 


LECTURE   V 


37 


Some  manufacturers,  and  almost  all  mail-order  houses,  issue 
expensive  catalogues  containing  descriptions,  in  some  cases 
illustrations,  and  prices  of  their  products.  Because  of  the  in- 
expediency of  issuing  new  catalogues  whenever  prices  are 
changed,  the  prices  quoted  in  the  catalogues  are  purely  nominal. 
The  catalogue  price  is  known  as  the  list  price.  The  actual  price 
is  determined  by  deducting  from  the  list  price  the  discounts 
quoted  to  the  customer,  usually  on  application. 

The  trade  discount  may  consist  of  but  one  discount,  as  60%  ; 
or,  it  may  consist  of  a  series  of  discounts,  as  60,  10,  and  5%, 
usually  written  60/10/5. 

Trade  discounts  are  never  recorded  in  the  books  of  account. 
We  must  learn  to  distinguish  between  a  trade  discount  and 
a  cash  discount.    Cash  discounts  should  always  be  recorded  in 
the  books  of  account. 

Cash  discount  defined. — A  cash  discount  is  a  deduction  of  a 
certain  percentage  from  the  face  amount  of  an  invoice  if  paid 
within  a  specified  time. 

When  goods  are  sold  on  account,  the  terms  of  credit  usually 
provide  for  the  cash  discount  to  be  allowed  if  payment  is  made 
within  a  specified  time.  The  terms  vary  with  the  different  lines 
of  business.  The  most  common  terms  are  2%,  10  days;  net, 
30  days.  These  terms  mean  that  the  customer  has  the  option 
of  paying  the  full  amount  of  the  invoice  in  30  days  or  paying 
the  invoice  in  ten  days  and  deducting  2%  from  the  face  amount. 
These  terms  are  usually  expressed  as  follows,  2/10,  n/30; 
and  are  read,  two,  ten,  net  thirty. 

Thus,  an  invoice  covering  the  sale  of  merchandise  on  Jan.  i, 
in  amount  $2000,  under  terms  of  2/10,  n/30,  is  payable  in  full 
on  Feb.  i,  or,  if  paid  on  Jan.  11,  is  subject  to  a  deduction  of 
$40,  which  is  2%  cash  discount  on  $2000. 

Discounts  are  not  allowed  in  all  lines  of  business;  for  in- 
stance, rubber  is  sold,  net  10  days;  i.e.,  the  full  amount  of  the 
invoice  is  payable  in  10  days.  Nor  is  the  time  of  discount 
limited  to  10  days.  Furniture  is  sold  by  some  manufacturers 
on  terms  of  3/30,  n/90. 

Dating. — Furthermore,  the  textile  industries  have  established 
the  practice  of  dating  all  invoices  ahead.  By  dating  invoices 
ahead  is  meant  that  the  terms  of  discount  do  not  begin  to  oper- 
ate until  the  expiration  of  the  period  of  dating. 

Thus,  in  the  business  here  exemplified,  viz.,  woolen  goods 


I 


# 


BOOKKEEPING,   THEORY   AND   PRACTICE 


business,  the  regular  terms  are  9/10  and  60,  which  means  that 
an  invoice,  let  us  say,  dated  Mar.  i,  is  given  60  days  dating 
after  which  the  discount  period  of  10  days  begins.  To  illus- 
trate: an  invoice  dated  Mar.  i,  in  amount  $2000,  under  these 
terms  would  be  subject  to  a  deduction  of  $180  (cash  discount 
of  9%)  if  paid  within  10  days  after  May  i.  If  the  customer 
pays  the  invoice  on  or  before  Mar.  11,  he  is  entitled  to  an 
additional  discount  of  1%  (which  represents  60  days  interest 
at  6%),  thus  making  the  total  cash  discount,  10%. 

If  the  invoice  is  paid  during  the  period  beginning  Mar.  11 
and  ending  May  i,  the  customer  is  entitled,  in  addition  to  the 
cash  discount  of  9%,  to  interest  at  the  rate  of  6%  on  the  net 
amount  of  the  invoice,  (i.  e.,  after  the  discount  is  deducted)  from 
the  date  of  payment  to  the  date  of  maturity. 

Let  us  assume,  for  illustration,  that  an  invoice  dated  Mar.  i, 
in  amount  $2000,  under  terms  of  9/10  and  60,  is  paid  on  April  5. 
In  this  case  the  amount  paid  would  be  as  follows : 

Invoice  Mar.  i  $2,000.00 

Less  9%  discount  180.00 


Interest  from  April  5,  time  of  payment,  to 
May  II,  due  date  of  invoice,  (36  days  on 
$i8ao  at  6%) 


$1,820.00 


T0.92 


The  net  amount  to  be  paid  $1,809.08 

Entries  to  be  made. — For  the  purpose  of  illustrating  the 
double  entry  to  be  made  in  our  books  of  account  when  cash 
discount  is  deducted  by  a  customer  in  paying  a  sales  invoice, 
let  it  be  assumed  that  John  Doe  owes  us  for  merchandise  sold 
him,  $1000,  and  that  he  pays  $980,  having  deducted  the  2% 
cash  discount  ($20)  to  which  he  is  entitled.  The  twofold  effect 
expressed  in  account  form  is  as  follows  : 

Illustration  No.  28 

Showing  Indebtedness  of  John  Doe 

John   Doe 


Balance  $1000 


Illustration  No.  2g 
Showing  double  entry  made  on  receipt  of  payment. 
^^^^ Expense  John  Doe 


(I)  $980 


(i)  $20 


Bal.  $1000 


$1000  (i> 


LECTURE    V 


39 


"John  Doe's  Account"  must  be  credited  with  $1000  because 
he  has  paid  his  indebtedness ;  "Cash  Account"  must  be  debited 
with  the  actual  amount  of  cash  received,  which  in  this  case  is 
$980;  and  since  cash  discount  deducted  by  customers  is  an 
expense  of  the  business — in  that  the  customer  is  rendering  the 
business  a  service  by  paying  his  invoice  before  it  is  due — it 
follows  that  "Expense  Account"  must  be  debited. 

To  illustrate  the  entries  to  be  made  in  our  books  when  we 
deduct  cash  discount  in  paying  a  purchase  invoice,  let  us  assume 
that  we  owe  James  Smith  $1000,  and  that  in  paying  we  deduct 
the  2%  cash  discount  ($20)  to  which  we  are  entitled,  making 
the  amount  of  our  check  $980. 

Illustration  No.  30 

Showing  our  indebtedness  to  James  Smith 

James  Smith 


Balance 


Illustration  No.  31 
Showing  double  entry  made  when  paying  James  Smith 


$1000 


James  Smith 


Cash 


Interest  &  Discount 
Earned 


(i)  $1000 


Bal.  $1000 


$980  (r) 


$20  (i) 


"James  Smith's  Account"  must  be  debited  with  $1000  because 
we  have  paid  our  indebtedness;  "Cash  Account"  must  be  cred- 
ited with  $980,  the  actual  amount  of  cash  paid;  and  since  the 

cash  discount  deducted  by  us  is  an  income  of  the  business in 

that  we  rendered  a  service  to  our  creditor  by  paying  his  invoice 
before  it  was  due — it  follows  that  an  income  account  must  be 
credited.  Therefore,  "Interest  and  Discount  Earned  Account'' 
must  be  credited. 

Because  of  the  frequency  with  which  cash  discount  deduc- 
tions occur,  a  special  column  known  as  the  "Discount"  column 
is  usually  provided  on  each  side  of  the  Cash  Journal,  in  which 
are  recorded  all  discounts  deducted.  These  columns  are  posted 
in  total  at  the  end  of  each  month. 

Bank  discount  will  be  discussed  in  a  subsequent  lecture. 


>«l 


I       f 


40  BOOKKEEPING,   THEORY   AND   PRACTICE 

RECONCILIATION    OF    BANK    BALANCE 

Introductory. — It  is  the  custom  in  business,  periodically,  (usu- 
ally at  the  end  of  each  month),  to  leave  the  pass-book  with  the 
bank  to  be  balanced.  Such  is  not  the  case,  however,  when  the 
bank  follows  the  practice  of  sending  monthly  statements  to  its 
depositors. 

In  either  case,  the  bank  shows  the  individual  amounts  as 
well  as  the  total  amounts  credited  or  charged  to  the  depositor's 
account,  and  the  amount  of  the  balance.  It  returns  to  the  de- 
positor checks  drawn  by  him  which  have  been  paid  and  can- 
celled; and,  usually,  supports  all  other  charges  made  by  it  to 
the  depositor's  account  with  vouchers. 

Why  the  balance  of  cash  on  deposit  at  the  bank,  is  usually 
greater  than  the  balance  as  shown  by  the  cash  account. — The 
balance  of  cash  on  deposit  at  the  bank,  as  shown  on  the  monthly 
statement  or  pass-book,  is  usually,  but  not  always,  greater  than 
the  balance  as  shown  by  the  cash  account.  This  condition  is 
caused  by  the  fact  that  checks  are  seldom  paid  on  the  same 
day  on  which  they  are  drawn.  This  is  especially  true  of  checks 
payable  to  creditors.  Such  checks  as  a  rule  pass  through  the 
hands  of  two  or  more  persons,  thus  causing  a  lapse  of  several 
days  before  they  are  finally  paid  by  the  bank. 

Let  us  assume,  for  the  purpose  of  illustrating  why  several 
days  usually  elapse  before  a  check  is  paid,  that  on  March  31, 
we  send  a  check  of  the  same  date  payable  through  the  New 
York  Clearing  House  to  a  creditor  whose  place  of  business  is 
in  Paterson,  N.  J.  The  check  would  be  received  by  the  creditor 
on  April  i ;  and,  since  it  is  customary  to  deposit  daily  with  the 
bank  all  checks  received  during  banking  hours  (10  A.  M.  to 
3  P.  M.),  the  check  would  be  deposited  on  April  ist  with  the 
bank  which  we  shall  assume  to  be  the  Paterson  National  Bank. 
The  Paterson  National  Bank  would  send  the  check  on  the  same 
day  (April  i)  to  its  correspondent  bank  in  New  York  City 
(i.e.,  the  bank  through  which  it  transacts  business  in  New 
York  City).  The  correspondent  bank  would  receive  the  check 
on  April  2,  and  would  (if  received  up  to  a  certain  time)  present 
it  on  the  same  day  to  the  Clearing  House,  where  it  would  be 
paid  by  the  bank  on  which  we  have  drawn  the  check. 

Since  some  of  the  checks  drawn  by  us  on  the  last  day  or 
two  of  the  month,  are  not  paid,  and  therefore  are  not  charged 
to  our  account  on  the  books  of  the  bank,  until  the  following 
month,  it  follows  that  the  amount  of  the  balance  of  our  account 


LECTURE   V 


41 


on  the  books  of  the  bank  will  thus  be  greater  than  that  shown 
to  be  on  deposit  by  the  cash  account. 

Accounting  for  the  difference.— The  difference  caused  by 
checks  outstanding  is  accounted  for  by  preparing  on  the  check 
book  or  elsewhere  a  reconciliation  statement  in  which  the  total 
amount  of  checks  outstanding  either  is  added  to  the  cash  ac- 
count balance  or  is  subtracted  from  the  amount  of  the  balance 
as  shown  on  the  bank's  statement. 

Let  us  assume,  for  illustration,  that  the  cash  account  balance 
Sept.  30,  is  $2,000 ;  that  the  balance  shown  on  the  bank's  state- 
ment dated  Sept.  30,  is  $3,400 ;  and,  that  checks  numbered  134, 
135.  136  and  137,  in  amount  $300,  $500,  $200,  and  $400,  are 
outstanding. 

Illustration  No.  32 
Method  I 
Sept.  30    Balance  per  cash  account  and  check  book  $2,000 

Reconciliation  Statement 

Balance  per  check  book  $2,000 

Add — Checks  Outstanding : 

#134—  $300 

^ZS—  500 

136—  200 

^^7—  400 

Total  checks  outstanding 


Bank's  balance 


$1,400 
$3400 


By  this  method,  we  bring  the  balance  per  cash  account  and 
check  book  into  agreement  with  the  balance  as  shown  on  the 
bank's  statement. 


Illustration  No.  32a 
Method  2 
Sept.  30    Balance  per  cash  account  and  check  book 

Reconciliation  Statement 


Balance  per  bank's  statement 
Deduct — Checks  Outstanding : 

#134- 

135— 

136— 

137— 

Total  checks  outstanding 


$300 
500 
200 
400 


$2,000 


$3,400 


$1400 


Balance  per  cash  account  and  check  book  $2,000 


h   1 


'1^ 


42 


BOOKKEEPING,   THEORY   AND   PRACTICE 


By  this  method  we  bring  the  balance  as  shown  on  the  bank's 
statement  into  agreement  with  the  balance  as  shown  by  the  cash 
account  and  the  check  book.  Note  that  in  either  case  the  bal- 
ance per  check  book  is  carried  forward;  and,  if  adjustment  of 
the  check  book  balance  is  necessary,  it  is  made  during  the  fol- 
lowing period. 

However,  the  difference  between  the  amount  of  our  balance 
and  that  shown  on  the  bank's  statement  may  not  be  due  only 
to  checks  outstanding.  It  may  be  due  to  interest  allowed  by 
the  bank  or  to  charges  for  collection  or  exchange.  Trust  Com- 
panies usually  allow  interest  at  the  rate  of  2%  per  annum  on 
the  average  daily  balance,  and,  at  the  end  of  each  month,  credit 
the  depositor's  account  with  the  amount  of  the  interest.  If 
exchange  or  collection  on  out-of-town  checks  is  not  paid  to 
the  bank  when  the  deposit  is  made,  such  items  are  charged  to 
the  depositor's  account. 

Such  transactions  require  adjustment  of  our  own  books  in 
order  to  bring  the  balance  as  shown  by  our  cash  account  and 
check  book  into  agreement  with  that  as  shown  on  the  bank's 
statement.  The  adjustment  between  the  two  balances  is  made 
by  entering  in  the  check  book,  as  a  deposit,  interest  allowed 
by  the  bank,  and  entering  as  a  withdrawal,  charges  made  by 
the  bank  for  exchange  or  collections.  The  cash  account  is  ad- 
justed by  making  proper  entries  on  the  receipt  and  payment 
side  of  the  "Cash  Journal"  to  cover  these  items.  Such  entries 
are  made  after  the  statement  is  received. 

QUESTIONS 

(i)     What  is  the  purpose  of  the  "Cash  Journal"? 

(2)  What  is  the  difference  between  a  trade  discount,  and  a 
cash  discount? 

(3)  Are  trade  discounts  ever  recorded  in  the  books  of  ac- 
count ? 

(4)  What  do  the  following  terms  mean:  2/10,  n/30;  9/10 
and  60 ;  net  30  ? 

(5)  An  invoice  dated  Mar.  i,  in  amount  $2,000,  under  terms 
of  9/10  and  60,  is  paid  on  Mar.  xj.  What  is  the  amount  of  the 
check  ? 


LECTURE    V 


43 


(6)     Journalize  the  following  transactions : 


Jan.  15.    Received  from  J.  Clark,  check  in  amount  $735,  in  pay- 
ment of  invoice  dated  Jan.  5,  $750,  less  2%. 
17.    Paid  by  check  L.  Cohn,  $1,960,  invoice  Jan.  7,  in  amount 
$2,000,  less  2%. 

(7)  Reconcile  the  following  bank  balance  bringing  the  check 
book  balance  into  agreement  with  that  of  the  bank.  Balance 
per  check  book,  $972.13.  Balance  per  pass-book,  $1,986.24. 
The  amounts  of  the  checks  outstanding  were  as  follows :  $324.89, 
$63.14,  $263.84,  $73.28,  $276.88.  The  items  not  entered  in  the 
check  book  were  as  follows:  interest  on  bank  balance  $14.23;. 
exchange  on  out-of-town  checks  charged  by  the  bank  $2.15. 


LECTURE    VI 

THE    BASIC    PRINCIPLES    OF    DOUBLE    ENTRY 

BOOKKEEPING 

Double  entry  bookkeeping  compared  to  a  balancing  scale. — 

We  have  already  learned  that  double  entry  bookkeeping  is  based 
on  the  principle  of  equal  debits  and  equal  credits  in  amount: 
therefore  double  entry  bookkeeping  can  be  compared  to  a 
balancing  scale,  the  two  sides  of  which  must  be  kept  in  balance 
at  all  times.  The  elements  to  be  balanced  in  bookkeeping  are 
the  assets  of  a  business  against  its  liabilities  and  capital. 
Expressed  in  the  form  of  a  scale  we  have : 

Illustration  I^o.  JJ 


LECTURE    V 


Assets 

Liabilities 
and 
Capital 

Debits  equal  Credits 

Expressed  in  the  form  of  an  equation  we  have : 

Assets  equal  Liabilities  plus  Capital 

Assets  defined. — "The  assets  of  a  business  consist  of  all  the 
property  and  rights  belonging  to  the  business  which  have  a 
money  value."     (Lisle.) 

Anything  which  the  business  owns  that  can  be  converted  into 
cash,  is  an  asset. 

Liabilities  defined. — The  liabilities  of  a  business  consist  of 
the  debts  of  the  business  to  outsiders. 

Proprietorship  defined. — The  proprietorship  of  a  business 
consists  of  the  owner's  equity  in  the  assets  of  the  business. 

The  proprietorship  or  capital  of  a  business  is  the  difference 
between  the  assets  and  the  liabilities  of  a  business. 

Referring  to  the  January  transactions,  it  will  be  found  that 


44 


45 


the  first  double  entry  made  when  A.  Reid  began  business,  ex- 
pressed in  account  form  is  as  follows: 


Illustration  No.  34 


Cash 


A.   Reid,    Proprietor 


$10,000 


$10,000 


The  elements  balanced  here,  expressed  in  the  form  of  an 
equation,  are: 

Assets   ($10,000)  equal  Capital  or  Proprietorship  ($10,000) 

"Cash  Account"  was  debited  because  the  business  acquired  an 
asset  (cash)  ;  and  the  "Proprietor's  Account"  was  credited,  not 
because  the  business  owed  A.  Reid,  the  proprietor,  $10,000,  but 
because  it  was  necessary  to  record  the  ownership  of  the  pro- 
prietor in  the  assets  of  the  business. 

It  will  be  remembered  that  we  said  at  the  start  that  the 
"Proprietor's  Account"  is  credited  to  show  the  amount  which 
the  business  owes  the  proprietor,  considering  the  proprietor 
apart  from  the  business.  We  stated  the  mattter  thus  merely 
for  pedagogical  reasons.  Now,  however,  we  must  begin  look- 
ing upon  the  "Proprietor's  Account,"  or  "Capital  Account"  as 
it  is  frequently  called,  as  representing  not  an  indebtedness  of 
the  business  to  the  proprietor,  but  the  ownership  of  the  pro- 
prietor in  the  assets  of  the  business. 

If  we  now  add  to  the  above  transaction  that  of  Jan.  4,  in 
which  we  purchased  on  account  from  Sellew  &  Co.,  shelves  and 
partitions  in  amount  $700,  the  two  double  entries,  expressed  in 
account  form,  will  be  as  follows: 


Cash 


Illustration  No.  35  % 

A.    Reid,    Proprietor 


$10,000 


Furniture  &  Fixtures 


$10,000 


Sellew  &  Co. 


$700 


$700 


46 


BOOKKEEPING.   THEORY  AND   PRACTICE 


Expressed  in  the  form  of  a  balancing  scale  we  have 

fllustration  No.  36 


Assets 


Cash 

Fum.  &  Fix. 


$10,000 
700 


Liabilities  and  Capital 

Sellew  &  Co.  $700 

A.  Reid,  Prop.        10,000 


Debits 


equal 


Credits 


To  give  expression  to  the  same  facts  in  bookkeeping  style, 
we  prepare  what  is  commercially  called  a  financial  statement 
and  technically  known  as  a  "Balance  Sheet": 

Illustration  No.  37 

A.  Reid 

Balance  Sheet,  Date — 


Cash 

Furniture  &  Fixtures 

$10,000 
700 

Liability  (Sellew  &  Co.) 
A.  Reid,  Proprietor 

Total  Liab.  &  Cap. 

$700 
10,000 

Total  Assets 

$10,700 

$10,700 

Balance  Sheet  defined. — A  balance  sheet  is  a  concise  state- 
ment compiled  from  the  books  of  a  concern,  which  have  been 
kept  by  double  entry,  showing  on  the  left-hand  side  all  the 
assets,  and  on  the  right-hand  side  all  the  liabilities  as  well  as 
proprietorship  at  a  particular  time. 

An  interpretation  of  this  financial  statement  reads  that  the 
business  has  total  assets,  in  amount  $10,700;  and  has  liabilities 
(debts)  of  $700,  making  the  ownership  of  the  proprietor  in  the 
assets  of  the  business,  $10,000. 

Bookkeeping  concerns  itself  with  recording  the  changes  in 
these  three  elements  and  expressing  them  in  terms  of  debit  and 
credit. 

As  a  result  of  business  operations,  the  amounts  of  these  ele- 
ments are  constantly  changing.  The  assets,  the  liabilities,  and 
the  proprietorship  either  increase  or  decrease. 

Seldom  if  ever  in  the  course  of  operations  do  the  amounts  of 


LECTURE   VI 


47 


these  elements  remain  the  same.  In  order  that  there  may  be 
no  change  in  the  amounts  of  these  elements,  the  net  result  of 
operations  must  show  neither  a  gain  nor  a  loss. 

The  rules  for  recording  the  increases  and  decreases  in  assets, 
liabilities,  and  proprietorship  are  as  follows: 

We  make  a  debit  entry  to  record: 

An  increase  in  assets ; 
A  decrease  in  liabilities ; 

A  decrease  in  proprietorship,  or  capital.  (Expenses 
decrease  proprietorship.) 

We  make  a  credit  entry  to  record : 

A  decrease  in  assets ; 
An  increase  in  liabilities; 

An  increase  in  proprietorship  or  capital.     (Income 
increases  proprietorship.) 

Application  of  these  rules. — Let  us  consider,  for  the  purpose 
of  illustrating  the  application  of  these  rules,  that  John  Smith 
begins  business  with  $10,000  capital  consisting  of  $10,000  in 
cash,  and  with  $5,000  in  merchandise;  and  that  he  owes  $5,000 
to  A.  Brown  for  the  merchandise  purchased. 

From  what  we  have  learned  thus  far,  we  understand  that 
the  asset  accounts  must  be  debited  and  the  liability  and  capital 
accounts  credited.  Thus  the  opening  entries  expressed  in  ac- 
count form  would  be  as  follows : 


Illustration  No.  38 


Cash 


A.  Brown 


$ro,ooo 


Merchandise 


$5,000 


J.  Smith,  Capital 


$5,000 


$r  0,000 


(i)  If  J.  Smith  should  purchase  $1,000  worth  of  merchandise 
for  cash,  the  twofold  effect  would  be  an  increase  in  the  asset 
merchandise,  and  a  corresponding  decrease  in  the  asset  cash. 


«MHk 


BOOKKEEPING,   THEORY   AND    PRACTICE 


The  increase  in  the  asset  merchandise  would  be  recorded  by 
debiting  the  merchandise  account ;  the  decrease  in  the  asset  cash 
would  be  recorded  by  crediting  the  cash  account,  as  shown  in 
the  following  illustration : 


Illustration  No.  sg 


Cash 


A.  Brown 


Bal. 


$10,000 


$1,000    (l) 


Merchandise 


Bal. 


J.  Smith,  Capital 


$5,000 


Bal. 
(I) 


$5,000 

1,000 


Bal. 


$10,000 


(2)  If  J.  Smith  should  purchase  $2,000  worth  of  merchandise 
on  account  from  A.  Brown,  the  twofold  effect  would  be  an  in- 
crease of  $2,000  in  the  asset,  merchandise,  and  a  corresponding 
increase  in  the  liability  to  A.  Brown.  The  increase  in  the  asset 
merchandise  would  be  recorded  by  debiting  the  merchandise 
account;  the  increase  in  the  liability  to  A.  Brown  would  be 
recorded  by  crediting  the  account  of  A.  Brown,  as  shown  in 
the  following  illustration: 


Illustration  No.  40 


Cash 


A.  Brown 


Bal. 


$10,000 


$1,000 


(I) 


Bal.      $5,000 

2,000  (2) 


Merchandise 


J.  Smith,  Capital 


Bal. 

(I) 

(2) 


$5,000 

1,000 
2,000 


Bal. 


$10,000 


(3)  If  J.  Smith  should  pay  A.  Brown  $3,000  in  cash  on 
account,  the  twofold  effect  would  be  a  decrease  in  the  liability 
to  A.  Brown  and  a  corresponding  decrease  in  the  asset  cash. 
The  decrease  in  the  liability  to  A.  Brown  would  be  recorded 
by  debiting  the  account  of  A.  Brown;  the  decrease  in  the  asset 
cash  would  be  recorded  by  crediting  the  cash  account,  as  shown 
in  the  following  illustration: 


LECTURE    VI 


49 


Illustration  No.  41 


Cash 


A.  Brown 


Bal. 


$10,000 


$1,000  (i)       (3) 
3,000  (3) 


$3,000 


Bal.     $5,000 

2,000  (2) 


Merchandise 


J.  Smith,  Capital 


Bal. 

(I) 
(2) 


$5,000 
1,000 
2,000 


Bal 


$10,000 


(4)  Thus  far  we  have  considered  transactions  which  result 
in  an  increase  or  decrease  in  assets  and  liabilities  only.  Let  us 
now  consider  transactions  that  effect  capital. 

If  J.  Smith  should  pay  $400  in  cash  for  rent,  the  twofold 
effect  would  be  a  decrease  in  the  asset  cash  and  a  correspond- 
ing decrease  in  capital.  The  decrease  in  cash  is  recorded  by 
crediting  the  cash  account;  the  decrease  in  capital  is  recorded 
by  debiting  the  capital  account,  as  shown  in  the  following  illus- 
tration : 


Illustration  No.  42 


Cash 


A.  Brown 


Bal 

$10,000              $1,000  (i) 

3,000  (3) 

400  (4) 

Merchandise 

(3) 

$3,000 
J.   Smith 

Bal      $5,000 

2,000  (2) 

,  Capital 

Bal 

(I) 
(2) 

$5,000 
1,000 
2,000 

(4) 

$400 

Bal.           $10,000 

(5)  If  J.  Smith  should  receive  $5  in  cash  for  interest  on 
his  bank  balance,  the  twofold  effect  would  be  an  increase  in 
the  asset  cash  and  a  corresponding  increase  in  capital.  The 
increase  in  cash  is  recorded  by  debiting  the  cash  account;  the 
increase  in  capital  is  recorded  by  crediting  the  capital  account, 
as  shown  in  the  following  illustration : 


50 


BOOKKEEPING,   THEORY   AND    PRACTICE 


Illustration  No.  43 


Cash 

A.  Bi 

rown 

Bal. 

$10,000 

$1,000    (l) 

(3) 

$3,000 

Bal.      $5,000 

(5) 

5 

3.000  (3) 
400  (4) 

2,000  (2) 

Merchandise 

J. 

Smith,  Capital 

Bal 

$5,000 

(4) 

$400 

Bal.    $10,000 

(I) 

1,000 

5  (5) 

(2) 

2,000 

It  is  not  the  practice  in  business  to  record  increases  and 
decreases  in  capital  directly  in  the  capital  account.  Instead,  tem- 
porary accounts,  known  as  expense  and  income  accounts,  are 
used  for  recording  the  expenses  and  income  of  the  business, 
as  shown  in  the  following  illustration : 

Illustration  No.  44 


Cash 

A.  Brown 

Bal. 

(5) 

$10,000 
5 

$1,000 

3,000 

400 

(I) 
(3) 
(4) 

(3) 

$3,000 

Bal.      $5,000 

2,000  (2) 

Merchandise 

J.    Smith,   Capital 

Bal. 

(I) 
(2) 

$5,000 
1,000 
2,000 

Bal.           $10,000 

Expense 

Interest  Discount  Earned 

(4) 


$400 


$5  (5) 


It  will  be  remembered  that  one  of  the  reasons  for  keeping 
books  is  to  enable  the  proprietor  to  tell  what  his  profit  or  loss 
is  for  any  given  period  of  time.     The    expense    and    income 


II' 


11 


LECTURE    VI 


51 


accounts  furnish  this  information.  Another  reason  for  keep- 
ing books  is  to  enable  the  proprietor  to  tell  what  his  financial 
condition  is  at  any  given  time.  The  asset,  liability,  and  capital 
accounts  furnish  this  information. 

Division  of  accounts.— Accounts  are  usually  divided  into  two 
classes,  viz..  Real  Accounts  and  Nominal  Accounts. 

Real  Accounts  are  those  which  reflect  the  financial  condition 
of  the  business.  Asset,  liability,  and  capital  accounts  are  real 
accounts.  The  real  accounts  furnish  the  information  from  which 
the  balance  sheet  is  prepared. 

Nominal  Accounts  are  those  which  reflect  changes  in  the 
financial  condition  of  the  business.  The  expense  and  income 
accounts  are  nominal  accounts.  They  furnish  the  information 
from  which  the  statement  of  gains  and  losses  is  prepared. 

What  each  account  on  the  trial  balance  represents.— Since  the 
decreases  and  increases  in  proprietorship,  due  to  losses  and 
gams,  are  always  recorded  in  separate  accounts,  viz.,  expense 
and  mcome  accounts,  it  follows  that  the  accounts  shown  on  a 
trial  balance  before  the  books  are  closed  must  represent  either 
assets,  liabilities,  or  capital;  or,  losses  or  gains;  i.e.,  expenses 
or  mcome. 

The  following  illustration  in  the  form  of  a  balandng  scale 
IS  intended  to  show  what  each  account,  with  a  debit  or  credit 
balance  shown  on  the  trial  balance,  represents. 


Illustration  No.  45 


r 


Accounts    with 

a    debit 

balance 

represent  either:  | 

An 

asset 
or 

an 

expense. 

Accounts  with    a    credit 
balance  represent  either: 

A  liability, 

capital,  or 

income. 


Debits 


equal 


Credits 


Distinguishing  between  assets  and  expenses.— Knowing  that 
every  account  with  a  debit  balance  represents  either  an  asset 
or  an  expense,  it  remains  for  us  to  learn  how  to  distinguish 
between  assets  and  expenses.  We  have  learned  from  our  defi- 
nition that  an  asset  is  anything  which  the  business  owns  that 


52 


BOOKKEEPING,   THEORY   AND   PRACTICE 


I 


can  be  converted  into  cash.  Therefore  if  at  any  time  we  are 
in  doubt  as  to  whether  an  account  with  a  debit  balance  repre- 
sents an  asset  or  an  expense,  we  can  easily  determine  whether 
it  is  an  asset  by  asking  ourselves  the  question,  "Does  this 
account  represent  something  which  we  can  convert  into  cash?" 
If  so,  it  is  an  asset ;  if  not,  it  is  an  expense. 

Distinguishing  between  liabilities,  capital,  and  income. — 
Knowing  that  every  account  with  a  credit  balance  represents 
either  capital,  a  liability,  or  income,  it  remains  for  us  to  dis- 
tinguish between  liabilities  and  income.  The  capital  account 
is  easily  distinguished  from  liability  and  income  accounts,  in 
that  it  is  indicated  by  the  word  "capital"  or  "proprietor."  We 
have  learned  from  our  definition  that  a  liability  is  a  debt  due 
to  an  outsider.  Therefore,  if  at  any  time  we  are  in  doubt  as 
to  whether  an  account  with  a  credit  balance  represents  a  lia- 
bility or  income,  we  can  easily  determine  whether  it  represents 
a  liability  by  asking  ourselves  the  question,  "Does  this  account 
represent  a  debt  which  we  shall  have  to  pay?"  If  so,  it  is  a 
liability ;  if  not,  it  is  income. 

Exceptions  to  the  rule. — There  are  exceptions  to  the  rule  that 
every  account  with  a  debit  balance  represents  either  an  asset 
or  an  expense,  and  that  every  account  with  a  credit  balance 
represents  either  capital,  a  liability,  or  income.  The  merchan- 
dise accoimt  is  one  of  the  exceptions  to  the  rule. 


THE    MERCHANDISE    ACCOUNT 

What  the  balance  of  merchandise  account  represents. — If  you 
were  asked  what  the  debit  balance  in  the  "Merchandise  Ac- 
count," as  shown  on  the  trial  balance  of  Feb.  28,  represents, 
you  no  doubt  would  answer  that  it  represents  the  amount  of 
merchandise  now  on  hand;  and  that,  therefore,  it  is  an  asset. 
A  moment's  consideration,  however,  would  reveal  the  fact  that 
the  "Merchandise  Account"  was  debited  at  cost  for  merchan- 
dise purchased,  and  credited  at  the  selling  price  for  merchan- 
dise sold.  Moreover,  we  know  that  the  amount  of  merchandise 
on  hand  on  Feb.  28  (according  to  the  inventory)  is  $19,650. 
We  also  know  that  the  balance  of  the  account  ($14442.50) 
cannot  represent  a  loss,  because  every  sale  of  merchandise  was 
made  above  cost. 

What,  then,  does  the  balance  of  this  account  represent?  The 
answer  is,  "Nothing."    Not  until  the  inventory  at  the  end  of 


II- 


11 


ii 


« 


LECTURE    VI 


53 


the  period  is  recorded  on  the  credit  side  of  the  account,  does 
the  merchandise  account  mean  anything. 

How  the  gain  or  loss  on  merchandise  is  determined.— In  order 
to  determine  the  gain  or  loss  on  merchandise,  it  is  necessary 
to  take  a  physical  inventory  of  merchandise  in  stock  and  to 
credit  the  "Merchandise  Account"  with  the  amount  of  the  in- 
ventory. The  account  will  then  represent,  if  a  debit  balance 
the  loss  on  merchandise;  if  a  credit  balance,  the  gain  on  mer' 
chandise. 

Why  the  merchandise  account  must  be  credited  with  the 
inventory.-For  the  purpose  of  explaining  why  the  merchan- 
dise account  must  be  credited  with  the  inventory  at  the  end 
of  the  period,  let  us  consider  the  following  problem : 

A  merchant  purchased  100  hats  at  $2,  total  $200;  he  sold  y^ 
hats  at  $5,  realizing  $375 ;  he  had  in  stock  at  the  end  of  the 
period  25  hats  at  (cost)  $2,  total  $50.     What  was  the  profit^ 


Arithmetical  Solution 

The  merchant  received  for  the  hats  sold 
Cost  of  hats  sold: 

Purchases  ^^ 

Deduct — Inventory 
25  hats  at  (cost)  $2  '  ^q 


$375 


Cost  of  hats  sold 


Profit 


150 

$225 


Let  us  now  record  these  facts  in  the  merchandise  account: 


Illustration  No.   46 
Merchandise 


Purchases 


$200 


Sales 


$375 


rh  Ji^  "7''^"^'^^  /«»""*  is  debited   for  merchandise  pur- 
chased, and  credited  for  merchandise  sold. 

Observe  that  the  account  shows  a  credit  balance  of  $17.;  • 

recor^on'th  ^'^V^.r'^  '^  ^^^S-  Therefore,  if  we  were'  o 
record  on  he  credit  s.de  of  the  account,  the  inventory  of  $50 
the  account  would  then  show  a  credit  balance  of  $225  which 
represents  the  profit  on  merchandise  sold 


54 


BOOKKEEPING,   THEORY   AND   PRACTICE 

Illustration  No.  4T 
Merdiandise 


LECTURE    VI 


55 


Purchases 


B2C0 


Sales 
Inventory 


$375 
50 


If  we  now  compare  this  account  with  the  arithmetical  solu- 
tion, we  shall  find  that,  in  solving  the  problem  arithmetically, 
we  deducted  the  inventory  at  the  end  of  the  period  from  the 
purchases.  And  it  will  be  remembered  that  we  said,  "In  book- 
keeping, when  we  wish  to  subtract  from  any  one  side  of  an 
account,  we  record  the  item  on  the  opposite  side— which  has 

the  same  effect." 

Therefore,  by  recording  the  inventory  on  the  credit  side  of 
the  merchandise  account,  we  are  in  effect  subtracting  it  from 
the  purchases  on  the  debit  side.  Hence,  the  inventory  is  re- 
corded on  the  credit  side  of  merchandise  account  because  it 
represents  an  amount  to  be  subtracted  from  an  item  on  the 
debit  side  of  the  same  account. 

But,  if  we  credit  "Merchandise  Account"  with  $50,  it  follows 
that  we  must  make  a  debit  entry  for  the  same  amount.  It  is 
evident  that  the  merchant  will  begin  the  new  period  with  $50 
worth  of  merchandise  in  stock.  Therefore  a  "Merchandise 
Account"  is  opened  for  the  new  period,  to  which  the  inventory 
is  debited  as  of  the  next  day,  i.e.,  the  day  on  which  the  new 
period  begins.  The  double  entry  made  in  recording  the  inven- 
tory in  the  merchandise  account,  expressed  in  account  form,  is 

as  follows: 

Illustration  No.  48  (A  and  B) 

(A)     Merchandise 

(Old  Account) 


Note  that  the  numbers  in  parentheses  indicate  the  double  entry 
made  in  recording  the  inventory  at  the  end  of  the  period. 


Purchases 

$200 

Sales 
Inventory 

$375 
SO  (I) 

1 

1 
(B)     Merchandise 

1 

(New  Account) 

(l)     Inventory 

$50 

if 

The  credit  balance  in  the  "Old  Account"  represents  a  gain, 
and  the  account  is  closed  by  transferring  the  balance  to  "Profit 
and  Loss  Account." 

The  debit  balance  in  the  "New  Account"  represents  an  asset, 
and  appears  on  the  balance  sheet. 

The  merchandise  account  is  a  mixed  account — The  "Mer- 
chandise Account"  is  in  a  class  by  itself,  and  is  known  as  a 
mixed  account. 

It  is  a  mixed  account  because  it  is  neither  a  pure  asset  nor 
a  loss  nor  a  gain  account. 

It  is  a  pure  asset  account  at  the  beginning  of  each  period 
when  only  the  merchandise  inventory  appears  in  the  account. 
See  Illustration  No.  48B. 

It  becomes  a  mixed  account  immediately  on  the  resumption 
of  business  when  purchases  and  sales  are  debited  and  credited 
to  the  account.  See  Illustration  No.  46. 

It  becomes  a  loss  or  gain  account  only  after  the  inventory 
at  the  end  of  the  period  is  recorded  on  the  credit  side.  See 
Illustration  No.  47. 

CLOSING   THE   BOOKS 

Introductory.— By  the  term  "Closing  the  Books"  is  meant 
recording  the  close  of  the  financial  period.  This  is  done  by 
closing  all  the  nominal  (i.e.,  expense  and  income)  accounts 
and  balancing  all  the  real  (i.e.,  asset,  liability,  and  capital) 
accounts.  The  nominal  accounts  are  closed  by  transferring  the 
balances  of  these  accounts  to  Profit  and  Loss  account. 

Profit  and  loss  account— The  "Profit  and  Loss  Account" 
is  a  summary  account  to  which  are  transferred  all  losses  and 
gains.  The  balance  of  the  account  after  all  losses  and  gains 
have  been  transferred  to  it,  represents,  if  a  debit  balance,  the 
net  loss;  if  a  credit  balance,  the  net  gain  for  the  period.  The 
net  gain  or  loss  is  then  transferred  to  the  "Proprietor's  Ac- 
count." 

Expense  and  income  accounts.— We  have  learned  that  expense 
and  income  accounts  are  the  loss  and  gain  accounts;  and  that 
they  are  in  fact  used  in  place  of  the  "Proprietor's  A«count." 

Therefore  the  expense  and  income  accoimts  are  temporary 
accounts.  They  remain  open  on  the  books  only  until  such 
time  as  the  proprietor  wishes  to  arrive  at  the  gain  or  loss  for 
the  period.  Then  they  are  closed  out  to  "Profit  and  Loss 
Account,"  which  in  turn  is  closed  out  to  the  "Proprietor's 
Account." 


56 


BOOKKEEPING.   THEORY   AND    PRACTICE 


Illustration  No.  4g 


4 
? 

\ 

I 


IV 


It  will  be  remembered  that  we  said  that  "one  of  the  reasons 
for  keeping  books  is  to  enable  the  proprietor  to  tell  what  his 
gain  or  loss  has  been  for  a  given  period  of  time."  This  informa- 
tion he  is  able  to  get  from  the  "Profit  and  Loss  Account"  after 
the  books  have  been  closed. 

Asset,  liability,  and  capital  accounts. — The  asset,  liability,  and 
capital  accounts  are  the  permanent  accounts  on  the  books  of 
a  business.  Each  asset  account  represents  something  of  value 
which  the  business  owns,  and  is  not  closed  until  that  which  is 
represented  by  the  account  is  disposed  of.  For  instance,  cash 
is  an  asset;  therefore  the  "Cash  Account"  can  only  be  closed 
if  every  cent  of  cash  which  the  business  has  is  disposed  of. 
Each  liability  account  represents  something  which  the  business 
owes  to  an  outsider,  and  is  not  closed  until  the  account  is  paid. 
And  since  the  "Proprietor's  Account"  represents  the  ownership 
of  the  proprietor  in  the  assets  of  the  business,  it  follows  that 
his  account  is  not  finally  closed  until  he  withdraws  from  the 
business. 

Procedure  to  be  followed  in  closing  the  books: 

(i)  Take  a  trial  balance.  (The  ledger  should  always  be 
in  balance  before  the  books  are  closed.) 

(2)  Take  an  inventory  at  cost  or  market  value,  whichever 
is  the  lower.  A  separate  physical  inventory  of  merchandise  and 
goods  to  be  constmied  by  the  business  is  always  taken  at  the 
time  of  closing,  even  though  a  book  inventory  has  been  kept. 
The  same  holds  true  of  raw  materials  in  the  case  of  a  manu- 
facturing concern. 

(3)  Journalize  the  inventories.  After  the  total  merchandise 
and  other  inventories  are  obtained,  they  must  be  journalized  and 
recorded  in  the  accounts  before  the  books  can  be  closed. 

(4)  Post  the  inventories. 

(5)  Close  all  nominal  accounts  into  "Profit  and  Loss  Ac- 
count." 

(6)  Close  the  "Profit  and  Loss  Account"  into  the  "Pro- 
prietor's Account." 

(7)  Rule  all  nominal  accounts. 

(8)  Balance  all  real  accounts. 

(9)  Prepare  a  balance  sheet. 

(a)  To  show  the  financial  condition. 

(b)  To  prove  the  gain  or  loss. 


f 


INTENTIONAL  SECOND  EXPOSURE 


56 


BOOKKEEPING,   THEORY   AND    PRACTICE 


It  will  be  remembered  that  we  said  that  "one  of  the  reasons 
for  keeping  books  is  to  enable  the  proprietor  to  tell  what  his 
gain  or  loss  has  been  for  a  given  period  of  time."  This  informa- 
tion he  is  able  to  get  from  the  "Profit  and  Loss  Account"  after 
the  books  have  been  closed. 

Asset,  liability,  and  capital  accounts. — The  asset,  liability,  and 
capital  accounts  are  the  permanent  accounts  on  the  books  of 
a  business.  Each  asset  account  represents  something  of  value 
which  the  business  owns,  and  is  not  closed  until  that  which  is 
represented  by  the  account  is  disposed  of.  For  instance,  cash 
is  an  asset;  therefore  the  "Cash  Account"  can  only  be  closed 
if  every  cent  of  cash  which  the  business  has  is  disposed  of. 
Each  liability  account  represents  something  which  the  business 
owes  to  an  outsider,  and  is  not  closed  until  the  account  is  paid. 
And  since  the  "Proprietor's  Account"  represents  the  ownership 
of  the  proprietor  in  the  assets  of  the  business,  it  follows  that 
his  account  is  not  finally  closed  until  he  withdraws  from  the 
business. 

Procedure  to  be  followed  in  closing  the  books: 

(i)  Take  a  trial  balance.  (The  ledger  should  always  be 
in  balance  before  the  books  are  closed.) 

(2)  Take  an  inventory  at  cost  or  market  value,  whichever 
is  the  lower.  A  separate  physical  inventory  of  merchandise  and 
goods  to  be  consumed  by  the  business  is  always  taken  at  the 
time  of  closing,  even  though  a  book  inventory  has  been  kept. 
The  same  holds  true  of  raw  materials  in  the  case  of  a  manu- 
facturing concern. 

(3)  Journalize  the  inventories.  After  the  total  merchandise 
and  other  inventories  are  obtained,  they  must  be  journalized  and 
recorded  in  the  accounts  before  the  books  can  be  closed. 

(4)  Post  the  inventories. 

(5)  Close  all  nominal  accounts  into  "Profit  and  Loss  Ac- 
count." 

(6)  Close  the  "Profit  and  Loss  Account"  into  the  "Pro- 
prietor's Account." 

(7)  Rule  all  nominal  accounts. 

(8)  Balance  all  real  accounts. 

(9)  Prepare  a  balance  sheet. 

(a)  To  show  the  financial  condition. 

(b)  To  prove  the  gain  or  loss. 


Jllustration  No.  4g 


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LECTURE    VI 


57 


Journal  entries  necessary  to  close  the  books  at  February  28, 

19 — . — The  journal  entries  necessary  to  close  the  books  at  Feb. 
28,  19 — ,  appear  in  Illustration  No.  49. 

The  words  "New"  and  "Old"  in  the  adjusting  journal  entry 
indicate  that  the  new  period,  i.e.,  the  period  beginning  March  i, 
19 — ,  is  to  be  debited  and  that  the  old  period,  i.e.,  the  period 
ending  Feb.  28,  19 — ,  is  to  be  credited.  It  will  be  remembered 
that  we  said  that  the  merchandise  account  must  be  credited  with 
the  inventory  at  the  end  of  the  period  in  order  to  determine 
the  gain  or  loss  on  merchandise;  and  that,  if  we  credit  mer- 
chandise account,  some  account  must  be  debited  in  order  to 
keep  the  books  in  balance;  and,  since  we  begin  the  next  period 
with  a  certain  amount  of  merchandise  on  hand,  this  fact  must 
be  recorded  on  the  books.  Therefore,  Merchandise  Account, 
new  period,  i.e.,  period  beginning  March  i,  19 — ,  is  debited  with 
the  amount  of  the  inventory  to  record  the  fact  that  we  begin 
the  new  period  with  that  amount  of  merchandise  on  hand. 

Since  the  object  in  closing  books  is  to  determine  the  gain 
or  loss  and  at  the  same  time  to  record  the  close  of  the  account- 
ing period,  and  since  the  merchandise  account  must  be  credited 
with  the  inventory  at  the  end  of  the  period  in  order  to  deter- 
mine the  gain  or  loss  on  merchandise,  it  follows  that,  in  post- 
ing the  adjusting  journal  entry,  the  credit  to  merchandise  (old) 
account  must  be  posted  first.  After  this  posting  is  made,  the 
balance  of  the  account  represents  the  gain  or  loss  on  merchan- 
dise sold.  If  the  account,  after  the  inventory  has  been  applied 
to  the  credit  side,  shows  a  debit  balance,  it  represents  a  loss; 
if  a  credit  balance,  it  represents  a  gain. 

The  balance  of  the  merchandise  account  is  then  closed  by 
journal  entry  into  Profit  and  Loss  Account.  After  this  entry  has 
been  posted,  the  merchandise  account  is  in  balance.  It  is  ruled, 
and  the  debit  to  "Merchandise  New"  in  the  adjusting  entry  is 
then  posted  to  the  debit  side  of  Merchandise  Account  as  of  the 
following  day,  i.e.,  the  entry  is  dated  the  beginning  of  the  next 
period — in  this  case,  March  i,  19 — . 

In  order  to  show  the  condition  of  the  Merchandise  Account 
after  the  adjusting  and  closing  journal  entries  effecting  this 
account  have  been  posted,  an  exact  copy  of  the  account  as  it 
appears  in  the  ledger  is  produced  here  in  Illustration  No.  50. 

The  remaining  journal  entries  require  no  explanation,  since 


INTENTIONAL  SECOND  EXPOSURE 


Illustration  No.  so 


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LECTURE    VI 


57 


Journal  entries  necessary  to  close  the  books  at  February  28, 
19—. — The  journal  entries  necessary  to  close  the  books  at  Feb. 
2%,  19—,  appear  in  Illustration  No.  49. 

The  words  "New"  and  "Old"  in  the  adjusting  journal  entry 
indicate  that  the  new  period,  i.e.,  the  period  beginning  March  i, 
19 — ,  is  to  be  debited  and  that  the  old  period,  i.e.,  the  period 
ending  Feb.  28,  19 — ,  is  to  be  credited.  It  will  be  remembered 
that  we  said  that  the  merchandise  account  must  be  credited  with 
the  inventory  at  the  end  of  the  period  in  order  to  determine 
the  gain  or  loss  on  merchandise;  and  that,  if  we  credit  mer- 
chandise account,  some  account  must  be  debited  in  order  to 
keep  the  books  in  balance;  and,  since  we  begin  the  next  period 
with  a  certain  amoimt  of  merchandise  on  hand,  this  fact  must 
be  recorded  on  the  books.  *  Therefore,  Merchandise  Account, 
new  period,  i.e.,  period  beginning  March  i,  19 — ,  is  debited  with 
the  amount  of  the  inventory  to  record  the  fact  that  we  begin 
the  new  period  with  that  amoimt  of  merchandise  on  hand. 

Since  the  object  in  closing  books  is  to  determine  the  gain 
or  loss  and  at  the  same  time  to  record  the  close  of  the  account- 
ing period,  and  since  the  merchandise  account  must  be  credited 
with  the  inventory  at  the  end  of  the  period  in  order  to  deter- 
mine the  gain  or  loss  on  merchandise,  it  follows  that,  in  post- 
ing the  adjusting  journal  entry,  the  credit  to  merchandise  (old) 
account  must  be  posted  first.  After  this  posting  is  made,  the 
balance  of  the  account  represents  the  gain  or  loss  on  merchan- 
dise sold.  If  the  account,  after  the  inventory  has  been  applied 
to  the  credit  side,  shows  a  debit  balance,  it  represents  a  loss; 
if  a  credit  balance,  it  represents  a  gain. 

The  balance  of  the  merchandise  account  is  then  closed  by 
journal  entry  into  Profit  and  Loss  Account.  After  this  entry  has 
been  posted,  the  merchandise  account  is  in  balance.  It  is  ruledi 
and  the  debit  to  "Merchandise  New"  in  the  adjusting  entry  is 
then  posted  to  the  debit  side  of  Merchandise  Account  as  of  the 
following  day,  i.e.,  the  entry  is  dated  the  beginning  of  the  next 
period— in  this  case,  March  i,  19 — . 

In  order  to  show  the  condition  of  the  Merchandise  Account 
after  the  adjusting  and  closing  journal  entries  effecting  this 
account  have  been  posted,  an  exact  copy  of  the  account  as  it 
appears  in  the  ledger  is  produced  here  in  Illustration  No.  50. 

The  remaining  journal  entries  require  no  explanation,  since 


58 


BOOKKEEPING,   THEORY   AND   PRACTICE 


they  merely  record  the  transfer  of  certain  ledger  balances  from 
one  account  to  another.    For  example,  the  entry 


Profit  &  Loss 
To  Expense 

merely  effects  the  transfer  of  the  balance  in  the  Expense  Ac- 
count to  the  Profit  &  Loss  Account.    Similarly  the  entry 

Interest  and  Discount  Earned 
To  Profit  &  Loss 

merely  eifects  the  transfer  of  the  balance  in  the  Interest  & 
Discount  Earned  Account  to  the  Profit  &  L^ss  Account. 

After  the  balance  of  all  expense  and  income  accounts  have 
been  transferred  to  Profit  &  Loss,  the  balance  in  the  Profit  & 
Loss  Account  will  represent  the  net  gain  or  loss  for  the  period. 
If  the  account  shows  a  debit  balance,  it  represents  the  net  loss; 
if  a  credit  balance,  the  net  gain. 

Since  all  losses  are  assumed  by  the  proprietor,  it  follows 
that  gains  accrue  to  the  proprietor.  Therefore,  after  the  net 
gain  or  loss  is  determined,  the  balance  of  the  Profit  &  Loss 
Account  is  transferred  to  the  proprietor's  account. 

In  order  to  show  the  condition  of  the  Expense,  Interest  & 
Discount  Earned,  Profit  &  Loss,  and  A.  Reid's  Account  after 
the  closing  journal  entries  have  been  posted,  an  exact  copy  of 
these  accounts  as  they  appear  in  the  ledger  is  reproduced  here 
(Illustrations  Nos.  51,  52,  53,  and  54).  Observe  how  the  ledger 
accounts  are  ruled. 

Balancing  real  accounts.— We  are  now  familiar  with  the  tech- 
nique of  closing  the  nominal  accounts.  It  will  be  remembered 
that  we  said  the  real  accounts  are  balanced  at  the  end  of  the 
fiscal  period.  Therefore,  we  shall  now  illustrate  the  technique 
of  balancing  real  accounts.  Let  us  consider,  for  the  purpose  of 
illustration,  the  following  accounts  as  they  appear  in  the  ledger 
at  Feb.  28,  19 — :  Furniture  &  Fixtures;  Tower  Mfg.  Co.;  A. 
Reid,  Proprietor ;  and  L.  Crane.  The  condition  of  these  accounts 
after  they  have  been  balanced  is  shown  in  Illustration  No.  55. 

Observe : 

(i)  That  real  accounts  with  debit  balances  (such  as  the 
Furniture  &  Fixtures  account)  are  balanced  by  writing  the 
amount  of  the  balance  on  the  credit  side  of  the  account. 


Illustration  No.  51 


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t. 


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J 


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INTENTIONAL  SECOND  EXPOSURE 


58 


BOOKKEEPING,   THEORY   AND   PRACTICE 


they  merely  record  the  transfer  of  certain  ledger  balances  from 
one  account  to  another.    For  example,  the  entry 

Profit  &  Loss 
To  Expense 

merely  effects  the  transfer  of  the  balance  in  the  Expense  Ac- 
count to  the  Profit  &  Loss  Account.    Similarly  the  entry 

Interest  and  Discount  Earned 
To  Profit  &  Loss 

merely  effects  the  transfer  of  the  balance  in  the  Interest  & 
Discount  Earned  Account  to  the  Profit  &  Loss  Account. 

After  the  balance  of  all  expense  and  income  accounts  have 
been  transferred  to  Profit  &  Loss,  the  balance  in  the  Profit  & 
Loss  Account  will  represent  the  net  gain  or  loss  for  the  period. 
If  the  account  shows  a  debit  balance,  it  represents  the  net  loss; 
if  a  credit  balance,  the  net  gain. 

Since  all  losses  are  assumed  by  the  proprietor,  it  follows 
that  gains  accrue  to  the  proprietor.  Therefore,  after  the  net 
gain  or  loss  is  determined,  the  balance  of  the  Profit  &  Loss 
Account  is  transferred  to  the  proprietor's  account. 

In  order  to  show  the  condition  of  the  Expense,  Interest  & 
Discount  Earned,  Profit  &  Loss,  and  A.  Reid's  Account  after 
the  closing  journal  entries  have  been  posted,  an  exact  copy  of 
these  accounts  as  they  appear  in  the  ledger  is  reproduced  here 
(Illustrations  Nos.  51,  52,  53,  and  54).  Observe  how  the  ledger 
accounts  are  ruled. 

Balancing  real  accounts.— We  are  now  familiar  with  the  tech- 
nique of  closing  the  nominal  accounts.  It  will  be  remembered 
that  we  said  the  real  accounts  are  balanced  at  the  end  of  the 
fiscal  period.  Therefore,  we  shall  now  illustrate  the  technique 
of  balancing  real  accounts.  Let  us  consider,  for  the  purpose  of 
illustration,  the  following  accounts  as  they  appear  in  the  ledger 
at  Feb.  28,  19—:  Furniture  &  Fixtures;  Tower  Mfg.  Co.;  A. 
Reid,  Proprietor ;  and  L.  Crane.  The  condition  of  these  accounts 
after  they  have  been  balanced  is  shown  in  Illustration  No.  55. 

Observe : 

(i)  That  real  accounts  with  debit  balances  (such  as  the 
Furniture  &  Fixtures  account)  are  balanced  by  writing  the 
amount  of  the  balance  on  the  credit  side  of  the  account. 


Illustration  No.  5/ 


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Illustration  No.  52 


Illustration  No.  53 


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LECTURE   VI 


59 


(2)  That  real  accounts  with  credit  balances  (such  as  Tower 
Mfg.  Co.  and  A.  Reid  Proprietor)  are  balanced  by  writing  the 
amount  of  the  balance  on  the  debit  side  of  the  account. 

(3)  That,  in  either  case,  the  balance  in  the  old  period  is 
written  in  red  ink.  This  is  done  to  indicate  that  the  amount  was 
inserted  to  bring  both  sides  of  the  account  into  agreement. 

(4)  That  the  totals  are  written  on  the  same  line. 

(5)  That,  in  either  case,  the  balance  is  brought  down  on 
the  opposite  side  as  of  the  following  day,  i.e.,  the  entry  is  dated 
the  beginning  of  the  next  period — in  this  case,  March  i,  19 — . 

(6)  That  real  accounts  which  are  in  balance  (such  as  the 
account  of  L.  Crane)  are  ruled. 

The  condition  of  the  accounts  in  the  ledger,  at  Feb.  28,  19 — , 
after  closing  the  nominal  accounts  and  balancing  the  real  ac- 
counts is  shown  in  Illustration  No.  56,  A-H. 

Trial  balance  after  closing. — Since,  in  closing  the  books  at 
the  end  of  an  accounting  period,  all  expense  and  income  ac- 
counts are  closed  into  profit  and  loss  account,  and  the  balance 
in  the  latter  account  is  closed  into  the  proprietor's  account,  it 
follows  that  a  trial  balance  taken  from  the  ledger  after  closing 
will  contain  only  real  accounts,  i.e.,  asset,  liability,  and  capital 
accounts;  the  expense  and  income  accounts  having  been  closed, 
are  in  balance. 

At  the  time  of  closing  the  books,  it  is  customary  to  prepare 
what  is  commercially  known  as  a  financial  statement  and  tech- 
nically known  as  a  balance  sheet. 

Since  real  accounts  reflect  the  financial  condition  of  a  busi- 
ness, i.e.,  furnish  the  information  from  which  the  financial  state- 
ment or  balance  sheet  is  prepared,  and  since  a  trial  balance  after 
closing  contains  only  real  accounts,  it  follows  that  a  balance 
sheet  is  merely  a  concise,  classified  statement  of  accounts  appear- 
ing on  a  trial  balance  after  the  books  have  been  closed. 

The  following  is  a  trial  balance  taken  from  the  ledger  of  A. 
Reid  after  closing  (See  Illustration  No.  55). 


\ 


mi\ 


INTENTIONAL  SECOND  EXPOSURE 


Illustration  No.  56  C 


^?3i^***-v* 


til  .4>au.  O 


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S<\ 


LECTURE    VI 


59 


(2)  That  real  accounts  with  credit  balances  (such  as  Tower 
Mfg.  Co.  and  A.  Reid  Proprietor)  are  balanced  by  writing  the 
amount  of  the  balance  on  the  debit  side  of  the  account. 

(3)  That,  in  either  case,  the  balance  in  the  old  period  is 
written  in  red  ink.  This  is  done  to  indicate  that  the  amount  was 
inserted  to  bring  both  sides  of  the  account  into  agreement. 

(4)  That  the  totals  are  written  on  the  same  line. 

(5)  That,  in  either  case,  the  balance  is  brought  down  on 
the  opposite  side  as  of  the  following  day,  i.e.,  the  entry  is  dated 
the  beginning  of  the  next  period — in  this  case,  March  i,  19 — . 

(6)  That  real  accounts  which  are  in  balance  (such  as  the 
account  of  L.  Crane)  are  ruled. 

The  condition  of  the  accounts  in  the  ledger,  at  Feb.  28,  19 — , 
after  closing  the  nominal  accounts  and  balancing  the  real  ac- 
counts is  shown  in  Illustration  No.  56,  A-H. 

Trial  balance  after  closing. — Since,  in  closing  the  books  at 
the  end  of  an  accounting  period,  all  expense  and  income  ac- 
counts are  closed  into  profit  and  loss  account,  and  the  balance 
in  the  latter  account  is  closed  into  the  proprietor's  account,  it 
follows  that  a  trial  balance  taken  from  the  ledger  after  closing 
will  contain  only  real  accounts,  i.e.,  asset,  liability,  and  capital 
accounts;  the  expense  and  income  accounts  having  been  closed, 
are  in  balance. 

At  the  time  of  closing  the  books,  it  is  customary  to  prepare 
what  is  conmiercially  known  as  a  financial  statement  and  tech- 
nically known  as  a  balance  sheet. 

Since  real  accounts  reflect  the  financial  condition  of  a  busi- 
ness, i.e.,  furnish  the  information  from  which  the  financial  state- 
ment or  balance  sheet  is  prepared,  and  since  a  trial  balance  after 
closing  contains  only  real  accounts,  it  follows  that  a  balance 
sheet  is  merely  a  concise,  classified  statement  of  accounts  appear- 
ing on  a  trial  balance  after  the  books  have  been  closed. 

The  following  is  a  trial  balance  taken  from  the  ledger  of  A. 
Reid  after  closing  (See  Illustration  No.  55). 


1 


I 


I 

i 


60  BOOKKEEPING,   THEORY  AND   PRACTICE 

Illustration  No.  57 

A.  Reid  Trial  Balance  March  i,  19— 

or 
A.  Reid  Trial  Balance  Feb.  28,  19--,  After  Qosing 

^^^^     $6,782.56 

Furniture  &  Fixtures  835.00 

A   Reid,  Proprietor .'  .*  '      $13,483.06 

Merchandise      19,650.00 

Cann  &  Co ^qq.oo        ' 

l'}^'^  437.50 

W.   Hall   1^.00 

Miller  &  Co i^qoo.oo 

J.  T.  Ludlow 90000 

T.  Wilson  &  Co 1,30000 

Tompkins  &  Co .*.  l^y^^^ 

W.  Bradhurst  1,000.00 

Tower    Mfg    Co ,^00 

N.  Y.  DeskCo ^ooo 

^^"^.^-•••- 37^:^ 

Baldwm  Mfg^Co 5^00.00 

Reynolds   &   Co ^,800.00 

Taylor  Mfg.  Co 9,^00.00 

$38,855.06  $38,855.06 

The  following  is  a  balance  sheet  prepared  from  the  trial  bal- 
ance of  A.  Reid,  Feb.  28,  19—,  after  closing. 

Illustration  No.  58 
A.  Reid,  Balance  Sheet,  Feb.  28,  19— 

^    ,                  ^^^^^^  Liabilities  &  Capital 

^^^^  $6,782.56  Liabilities 

Merchandise  Inventory  19,650.00  Accounts  Payable  $2^^7200 

Accounts  Receivable  11,587.50  Capital  ^5,372.oo 

Furniture  &  Fixtures  835.00  A.  Reid,  Proprietor  13,483.06 

$38,855.06  $38,855.06 

Observe : 

1.  That  the  total  amount  due  from  Customers  on  open  ac- 
counts is  shown  in  the  balance  sheet  and  is  termed  "Accounts 
Receivable." 

2.  That  the  total  amount  due  to  creditors  on  open  account 


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LECTURE   VI 


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is  shown  in  the  balance  sheet  and  is  termed  "Accounts  Pay- 
able." 

.  3.  That  the  Balance  Sheet  is  dated  Feb.  28,  19 — ,  (the  close 
of  the  old  period),  and  not  March  i,  19 — ,  (the  beginning  of 
the  new  period). 

THE   SIX   COLUMN   STATEMENT 

Introductory. — The  six  column  statement  is  a  statement  of 
accounts  open  in  the  ledger.  It  consists  of  six  (money)  col- 
umns the  items  of  which  will  ultimately  appear  in  three  state- 
ments, viz.,  the  trial  balance,  profit  and  loss  account,  and  bal- 
ance sheet. 

The  six  column  statement  is  not  a  practical  statement.  It  is, 
however,  a  convenient  form  for  classifying  the  accounts  shown 
in  a  trial  balance  as  to  nominal  accounts  (i.e.,  expense  and 
income  accounts)  and  real  accounts  (i.e.,  asset,  liability,  and 
capital  accounts)  and  at  the  same  time  classifying  accounts 
with  debit  balances  as  to  expenses  or  assets,  and  accounts  with 
credit  balances  as  to  income,  liabilities,  or  capital,  in  order  to 
ascertain  the  gain  or  loss  for  the  period. 

Let  us  consider  for  the  purpose  of  illustration  the  trial  bal- 
ance of  A.  Reid  at  Feb.  28,  19—,  before  closing.  With  the 
exception  of  the  closing  inventory,  this  trial  balance  contains 
all  the  information  necessary  to  ascertain  the  gain  or  loss  for 
the  period  ended  Feb.  28,  19—.  Thus,  without  closing  the 
books,  we  can  make  use  of  the  amounts  shown  in  the  trial  bal- 
ance and  the  closing  inventory  of  $19,650,  and  ascertain  the 
gain  or  loss  and  the  financial  condition  of  the  business  by  pre- 
paring a  six  column  statement  as  shown  in  Illustration  No.  59A. 

In  Illustration  59A,  observe : 

(i)  That,  with  the  exception  of  the  merchandise  balance 
of  $14,442.50,  each  amount  shown  in  the  debit  trial  balance 
column  is  extended  either  in  the  expense  or  in  the  asset  column. 

(2)  That  each  amount  shown  in  the  credit  trial  balance  col- 
umn is  extended  either  in  the  income  or  in  the  liability  and  cap- 
ital column. 

(3)  That  the  amount  of  the  closing  inventory  ($19,650.) 
is  written  on  a  line  with  merchandise  in  the  asset  column,  and 
that  the  difference  between  the  amount  of  the  closing  inventory 
and  the  balance  of  the  merchandise  account  as  shown  in  the 
debit  trial  balance  column,  is  written  in  the  income  column. 


€ 


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llNTENTIONAL  SECOND  EXPOSURE 


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LECTURE   VI 


6i 


is  shown  in  the  balance  sheet  and  is  termed  "Accounts  Pay- 
able." 

.  3.  That  the  Balance  Sheet  is  dated  Feb.  28,  19 — ,  (the  close 
of  the  old  period),  and  not  March  i,  19 — ,  (the  beginning  of 
the  new  period). 

THE   SIX   COLUMN   STATEMENT 

Introductory. — The  six  column  statement  is  a  statement  of 
accounts  open  in  the  ledger.  It  consists  of  six  (money)  col- 
umns the  items  of  which  will  ultimately  appear  in  three  state- 
ments, viz.,  the  trial  balance,  profit  and  loss  account,  and  bal- 
ance sheet. 

The  six  column  statement  is  not  a  practical  statement.  It  is, 
however,  a  convenient  form  for  classifying  the  accounts  shown 
in  a  trial  balance  as  to  nominal  accounts  (i.e.,  expense  and 
income  accounts)  and  real  accounts  (i.e.,  asset,  liability,  and 
capital  accounts)  and  at  the  same  time  classifying  accounts 
with  debit  balances  as  to  expenses  or  assets,  and  accounts  with 
credit  balances  as  to  income,  liabilities,  or  capital,  in  order  to 
ascertain  the  gain  or  loss  for  the  period. 

Let  us  consider  for  the  purpose  of  illustration  the  trial  bal- 
ance of  A.  Reid  at  Feb.  28,  19—,  before  closing.  With  the 
exception  of  the  closing  inventory,  this  trial  balance  contains 
all  the  information  necessary  to  ascertain  the  gain  or  loss  for 
the  period  ended  Feb.  28,  19—.  Thus,  without  closing  the 
books,  we  can  make  use  of  the  amounts  shown  in  the  trial  bal- 
ance and  the  closing  inventory  of  $19,650,  and  ascertain  the 
gain  or  loss  and  the  financial  condition  of  the  business  by  pre- 
paring a  six  column  statement  as  shown  in  Illustration  No.  59A. 

In  Illustration  59A,  observe : 

(i)  That,  with  the  exception  of  the  merchandise  balance 
of  $14,442.50,  each  amount  shown  in  the  debit  trial  balance 
column  is  extended  either  in  the  expense  or  in  the  asset  column. 

(2)  That  each  amount  shown  in  the  credit  trial  balance  col- 
umn is  extended  either  in  the  income  or  in  the  liability  and  cap- 
ital column. 

(3)  That  the  amount  of  the  closing  inventory  ($19,650.) 
IS  written  on  a  line  with  merchandise  in  the  asset  column,  and 
that  the  difference  between  the  amount  of  the  closing  inventory 
and  the  balance  of  the  merchandise  account  as  shown  in  the 
debit  trial  balance  column,  is  written  in  the  income  column. 


I 


62 


BOOKKEEPING,   THEORY  AND   PRACTICE 


sent!  then.,   '^l^"^"^''  °f  '"^"'"^  over  expenses  which  repre- 
and  caprtal.  thus  proving  the  mathematical  accuracy  of  the  foot- 

ings. 

an^L'^K  V  *'  T  ''*'  ^'^  '°'"'""'  ^^'^-  *«  P™fit  and  loss, 
and  the  balance  sheet  columns)   are  balanced  by  writing  the 

"coir  '-''''  ■■"  '''  ^^-"-  -'  -  *eUilitief  and 
The  following  is  a  Profit  &  Ix)ss  Account  and  Balance  Sheet 
prepared  from  the  foregoing  Six  Column  Statements. 

A.  Reid 

_^__ Profit  and  Loss  Account 


19 — 

Feb.  28    Expense 
28    Net  Profit 


$1,740.21 
3,48306 


$5,223.27 


19 — 

Feb.  28    Mdse. 

28    Int.  &  Dis. 
Earned 


$5,207.50 
15.77 


^5*223,27 


Assets 
Cash 

Merchandise  Inventory 
Accounts  Receivable 
Furniture  &  Fixtures 


A.  Reid 
Balance  Sheet  Feb.  28,  19— 


$6,782.56 

19,650.00 

11,587.50 

835.00 


I 


Total 


Liabilities  and  Capital 
Liabilities 

Accounts  Payable  $25,372.00 

Capital  Jan.  i,  19—,  $10,000.00 
Profit   for  the  two 
months    ended 
Feb.  28,  19-,  $3483.06 

$13483.06 


$38,855.06         Total 


$38,855.06 


neJshn^'''  ^""Sr  ^'''''"'"'  "^"^  "^^^  ^'  P^^P^^^^  in  the  man- 
ner shown  in  Illustration  59B. 

..7JT^)l  T^'^"^"  ""^  '^'  '"""'"^^"^  ^^  ^'  merchandise  bal- 

k  tL  1  ?r^  r'"'"^"^'  '^''  ^'^'^"^^"t  (Illustration  59B) 

IS  the  same  as  that  shown  in  Illustration  No.  59A 

accoun!".^!?^''''''^  ^'  '^'  ^'^^'  ^^^^"^^  ^^  ^^^  merchandise 
account  as  shown  m  the  trial  balance  is  here  treated  as  an  ex- 
pense.    It  IS  so  treated  on  the  theory  that,  if  there  were  no 


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INTENTIONAL  SECOND  EXPOSURE 


6)2 


BOOKKEEPING,   THEORY  AND   PRACTICE 


^^\u  '^^^^  *^  ^''"'^  "^  '°^°'"«  "^e--  expenses  which  reore- 
and  capital,  thus  provmg  the  mathematical  accuracy  of  the  foot- 

an^L'^lI'f  "*"'  T  ''",°^  '"'"""^  (^'^-  t''^  P™fit  and  loss, 
and  the  balance  sheet  columns)   are  balanced  by  writing  the 

cT^rcoir  ^^°'^  '"  '''  -''-'  -'  -  theUilitief  1^ 
The  following  is  a  Profit  &  Loss  Account  and  Balance  Sheet 
prepared  from  the  foregoing  Six  Column  Statements. 

A.  Reid 

«__ Profit  and  Loss  Account 


19 — 

Feb.  28    Expense 
28    Net  Profit 


$1,740.21 
3,48306 


19— 
Feb.  28 
28 


Mdse. 
Int.  &  Dis. 
Earned 


$5,223.27 


$5,207.50 

15.77 
$5,223.27 


Assets 
Cash 

Merchandise  Inventory 
Accounts  Receivable 
Furniture  &  Fixtures 


Total 


A.  Reid 
Balance  Sheet  Feb.  28,  19— 

j  Liabilities  and  Capital 

Liabilities 

Accounts  Payable  $25,372.00 

Capital  Jan.  i,  19—,  $10,000.00 
Profit   for  the  two 
months    ended 
Feb.  28,  19-,  $3,483.06 

$13483.06 


$6,782.56 
19,650.00 

11,587.50 
835.00 


$38,855.06 


Total 


$38,855.06 


neJ^.tn'''  ^""111™  ^''''"''"'  "'"^  "^^^  ^'  P^^P^^^^  i"  the  man- 
ner  shown  m  Illustration  59B. 

With  the  exception  of  the  treatment  of  the  merchandise  bal- 
ance and  the  closmg  inventory,  this  statement  (Illustration  sqB) 
IS  the  same  as  that  shown  in  Illustration  No.  59A. 

Jl^'!^  ^'/^^'''^.'^  !^"'  '^'  ^'^^'  balance  of  the  merchandise 
account  as  shown  m  the  trial  balance  is  here  treated  as  an  ex- 
pense.     It  is  so  treated  on  the  theory  that,  if  there  were  no 


I 


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LECTURE    VI 


63 


merchandise  in  stock  at  the  close  of  the  period,  the  balance 
in  this  account  would  then  represent  the  loss  on  merchandise 
sold. 

The  closing  inventory,  which  does  not  appear  in  the  books, 
is  here  treated  as  an  addendum  to  the  trial  balance;  and  the 
amount  is  written  in  both  the  Income  and  Assets  columns.  The 
amount  is  written  in  the  Income  column  as  an  offset  to  the 
merchandise  expense  item  shown  in  the  trial  balance;  it  is  writ- 
ten in  the  asset  column  because  it  represents  an  asset  which 
does  not  appear  in  the  books. 

In  preparing  a  profit  and  loss  account  from  this  statement, 
the  merchandise  expense  item  should  be  deducted  from  the 
merchandise  income  item  and  the  net  amount  ($5207.50)  shown 
in  the  Profit  and  Loss  Account  as  follows : 


A.  Reid 
Profit  and  Loss  Account 


19— 
Feb.  28    Expense 
28    Net  Profit 


$1,740.21 
3,483.06 


$5,223.27 


19— 
Feb.  28    Mdse. 

28    Int.  &  Dis. 
Earned 


$5,207.50 

15-77 
$5,223.27 


Let  us  first  consider  the  accounts  with  debit  balances.  It  will 
be  remembered  that  we  said  accounts  with  debit  balances  rep- 
resent either  an  asset  or  an  expense.  It  should  be  borne  in 
mind,  however,  that  we  also  said  there  are  exceptions  to  this 
rule.  Therefore,  barring  exceptions  to  the  rule,  every  item 
which  appears  in  the  debit  column  of  the  trial  balance  must  be 
written  either  in  the  asset  column  or  in  the  expense  column. 

Cash  is  an  asset;  therefore,  the  amount  shown  in  the  trial 
balance  is  written  in  the  asset  column. 

Furniture  &  Fixtures  is  an  asset. 

Let  us  disregard  the  merchandise  account  until  we  have  dis- 
posed of  all  the  other  items  in  the  trial  balance. 

Expense  requires  no  explanation.  The  title  of  the  account 
indicates  the  nature  of  the  item,  viz.,  an  expense.  Therefore, 
the  amount  shown  in  the  trial  balance  is  written  in  the  Expense 
column. 


64 


BOOKKEEPING,  THEORY  AND   PRACTICE 


LECTURE   VI 


6S 


Cann  &  Co.  is  a  personal  account.  Personal  accounts  may 
show  either  debit  or  credit  balances.  Personal  accounts  with 
debit  balances  are  asset  accounts  because  they  represent  amounts 
owed  to  the  business.  Since  Cann  &  Co.*s  account  shows  a 
debit  balance,  it  represents  the  amount  of  the  debt  due  from  them 
and  therefore  is  an  asset.  The  same  is  true  of  the  following 
personal  accounts  shown  in  the  trial  balance : 

J.  Link 

I.  Hughes 

W.  Hall 

Miller  &  Co. 

J.  T.  Ludlow 

T.  Wilson  &  Co. 

Tompkins  &  Co. 

W.  Bradhurst 

Let  us  now  consider  the  accounts  with  credit  balances.  It 
will  be  remembered  that  we  said  accounts  with  credit  balances 
represent  either  capital,  a  liability,  or  income.  Therefore,  bar- 
ring exceptions  to  the  rule,  every  item  which  appears  in  the 
credit  column  of  the  trial  balance  must  be  written  either  in  the 
Liability  &  Capital  column  or  in  the  Income  column. 

A.  Reid,  Proprietor,  represents  the  Capital  invested  by  the 
proprietor  at  the  beginning  of  the  period.  The  amount  shown 
in  the  trial  balance  is  written  in  the  Liabilities  and  Capital 
column. 

Interest  and  Discount  Earned  as  the  title  of  the  account  indi- 
cates represents  income.  Therefore,  the  amount  shown  in  the 
trial  balance  is  written  in  the  Income  Column. 

Tower  Mfg.  Co.  is  a  personal  account.  Since  personal  ac- 
counts with  credit  balances  (except  the  capital  accounts)  rep- 
resent debts  due  by  the  business  to  outsiders,  such  accounts 
are  liability  accounts.  Tower  Mfg.  Co.'s  account  shows  a 
credit  balance.  Therefore,  it  represents  a  liability,  and  the 
amount  shown  in  the  trial  balance  is  written  in  the  Liability 
and  Capital  column.  The  same  is  true  of  the  following  per- 
sonal accounts  shown  in  the  trial  balance : 

N.  Y.  Desk  Co. 
Bell  &  Co. 
Baldwin  Mfg.  Co. 
Reynolds  &  Co. 
Taylor  Mfg.  Co. 

The  "Merchandise"  account,  is  an  exception  to  the  rule  that 


every  account  with  a  debit  balance  represents  either  an  asset 
or  an  expense.  It  will  be  remembered  that  we  said,  the  balance 
in  the  merchandise  account  is  meaningless  until  we  record  the 
amount  of  the  inventory  at  the  end  of  the  period  on  the  credit 
side  of  the  account.  Then  the  balance  in  the  merchandise  ac- 
count represents,  if  a  debit  balance,  the  loss  on  merchandise 
sold;  if  a  credit  balance,  the  gain  on  merchandise  sold.  Let  us 
now  consider  the  effect  of  recording  the  inventory  at  the  end 
of  the  period  in  the  merchandise  account. 

Expressed  in  account  form  the  effect  is  as  follows: 

Merchandise  Old 


Balance 


$1,442.50 


Inventory 


$19,650 


Merchandise  New 


Inventory 


$19,650 


The  effect  of  crediting  the  "Old"  merchandise  account  with 
the  inventory  at  the  end  of  the  period  is  to  clear  the  account 
of  its  real  element.  The  effect  of  debiting  the  new  merchandise 
account  is  to  record  the  real  element,  i.e.,  the  asset  element, 
in  a  separate  account.  Thus  the  credit  balance  of  $5,207.50 
in  the  "old"  account  represents  the  gain  on  merchandise  sold, 
and  is  written  in  the  "Income"  column.  The  debit  balance  of 
$19,650  in  the  "New"  account  represents  the  inventory,  and  is 
written  in  the  asset  column. 

QUESTIONS 

(i)     Define  assets,  liabilities,  proprietorship. 

(2)  State  the  rules  for  debiting  and  crediting  accotmts  by 
double  entry. 

(3)  Do  all  accounts  with  debit  balances  represent  either  an 
expense  or  an  asset?    Explain. 

(4)  What  does  a  credit  balance  in  the  merchandise  account 
represent  ?    Explain. 

(5)  What  does  a  debit  balance  in  the  merchandise  account 
represent?    Explain. 

(6)  What  is  meant  by  closing  the  books? 


66 


BOOKKEEPING,   THEORY  AND   PRACTICE 


(7)  State  the  procedure  to  be  followed  in  closing  a  set  of 
books  kept  by  double  entry. 

(8)  How  are  accounts  classified? 

(9)  Define  real  account.    Define  nominal  account. 

(10)  What  is  the  difference  between  a  trial  balance  before 
closing  and  after  closing? 


p 


LECTURES    VII-VIII 

MERCHANDISE   ACCOUNT,  CONTINUED 

Note:  Students  should  read  again  the  section  on  Merchan- 
dise Account  under  Lecture  VI. 

Introductory.— The  merchandise  account  with  which  we  are 
now  familiar  is  often  referred  to  as  the  "old-fashioned"  mer- 
chandise account.  It  is  so  called  because  it  has  gradually  fallen 
into  disuse. 

Objection  to  the    old-fashioned    merchandise   account The 

objection  to  the  "Merchandise"  account  is,  that  it  contains  sev- 
eral elements  of  different  character,  and  that,  without  analysis, 
the  account  gives  no  information  of  value.  Sales,  returned 
sales,  purchases,  returned  purchases,  and  merchandise  inventory 
are  all  recorded  in  one  account,  with  the  result  that  transactions 
valued  on  different  bases  are  recorded  in  a  single  account.  For 
example,  the  "Merchandise"  account  is  debited  for: 

Inventory  at  cost  or  market  value. 

Purchases  at  cost. 

Sales  returns  at  selling  price; 

it  is  credited  for: 

Sales  at  selling  price. 

Purchase  returns  at  cost. 

Inventory  at  the  end  of  the  period  at  cost  or  market 
value. 

Thus  it  will  be  seen  that  both  the  debit  and  credit  sides  of 
the  merchandise  account  contain  values  on  different  bases,  viz., 
cost  and  selling  price. 

The  component  parts  of   the   '^Merchandise"   account— The 

component  parts  of  the  "Merchandise"  account  are  inventory, 
purchases,  and  sales. 

To  overcome  the  objections  to  the  old-fashioned  "Merchan- 
dise" account,  it  is  the  practice  now  to  keep  in  the  ledger  an 
account  for  each  of  its  component  parts,  viz..  Inventory,  Pur- 
chases, and  Sales. 


67 


w 


^ ' 


^t 


I 

I 


t& 


68 


BOOKKEEPING,   THEORY   AND   PRACTICE 


Inventory 


This  account  is  debited  at  the 
beginning  of  each  period  with  the 
amount  of  merchandise  on  hand. 


It  is  credited  at  the  end  of  each 
period  with  the  amount  of  mer- 
chandise on  hand. 


Purchases 


This  account  is  debited  with  the 
amount   6i  merchandise  purchased. 


It  is  credited  with  the  amount  of 
purchases  returned. 


Sales 


This  account  is  debited  with  the 
amount  of  sales  returned. 


It  is  credited  with  the  amount  of 
merchandise  sold. 


Note :  The  treatment  of  these  accounts  at  the  time  of  closing 
the  books  will  be  discussed  in  a  subsequent  chapter. 

SUBDIVISION   OF   THE   EXPENSE   ACCOUNT 

Wliat  is  meant  by  an  appropriate  expense  account. — In  intro- 
ducing items  of  expense,  we  said,  "Whenever  the  business 
receives  services  or  goods  to  be  consumed,  an  appropriate  ex- 
pense account  must  be  debited."  An  appropriate  expense  ac- 
cotmt  may  consist  of  a  single  expense  account  of  a  general 
character  kept  in  the  ledger  under  the  title  of  "Expense"  or 
"General  Expense,"  or  it  may  consist  of  numerous  expense  ac- 
cotmts  each  of  a  particular  character  kept  in  the  ledger  imder 
titles  which  designate  the  nature  of  the  item  of  expense.' 

Let  us  asstmie  for  illustration  that  the  following  expenses  are 
paid  in  cash : 


Mar.  I  Paid  Quick  Delivery  Co.,  $ioo  for  carting. 

I  Jay  Realty  Co.,  $200  for  rent. 

9  Consolidated  Gas  Co.,  $10.50  for  gas  service. 

9  N.  Y.  Telephone  Co.,  $14  for  telephone  service. 

10  N.  Y.  Supply  Co.,  $2.50  for  towel  service. 


« 


<( 


« 


u 


LECTURES    VII-VIII 


69 


All  these  items  may  be  charged  in  the  ledger  to  a  single  ex- 
pense account  of  a  general  character,  as  follows : 

Illustration  No.  60 
Illustrating  the  Use  of  a  Single  Expense  Account 
Expense  or  General  Expense  Cash 


Mar.  I. 

Cart. 

$100.00 

I 

Rent 

200.00 

9 

Light 

ro.50 

9 

Telep. 

14.00 

10 

Towel 

•SO 

I 


Mar.  I.    Cart.  $100.00 

I    Rent  200.00 

9    Light  ro.50 

9    Telep.  14.00 

10    Towel  50 


Or  separate  expense  accounts  may  be  kept  in  the  ledger  for 
the  different  classes  of  expense.  Each  item  of  expense  must 
then  be  charged  to  its  appropriate  account. 

Illustration  No.  61 

Illustrating  the  Use  of  Expense  Accounts  of  a  Particular  Character 
Cartage 


Cash 


Mar.  I    Cash      $100.00 


Rent 


Mar.  r.    Cash    $200.00 


Mar.  I  Cart.  $100,00 

I  Rent  200.00 

9  Light  ro.50 

9  Telep.  14.00 

10  Towel  .50 


Light 


Mar.  9    Cash       $10.50 


Telephone 


Mar.   10    Cash       $  . 


50 


11 


TO 


BOOKKEEPING,   THEORY   AND   PRACTICE 


The  account  entitled  "Expense"  is  here  used  as  a  general 
expense  account.  To  it  are  charged  only  such  items  of  expense 
as  cannot  properly  be  charged  to  any  of  the  particular  expense 
accounts. 

Such  accounts  as  cartage,  rent,  light,  telephone,  etc.,  are 
merely  subdivisions  of  a  single  expense  account.  Therefore,  at 
the  time  of  closing  the  books,  they  are  treated  in  the  same 
manner  in  which  the  "Expense  Account"  was  treated  in  closing 
the  books  at  February  28,  19 — ,  i.e.,  the  balance  of  each  account 
is  closed  into  profit  and  loss  account. 

THE    SALES    JOURNAL 

Sales  Journal  defined. — The  Sales  Journal  is  a  book  of  orig- 
inal entry  in  which  are  recorded  all  charges  against  customers. 

When  a  special  journal  is  used  for  sales  transactions,  such 
transactions  are  no  longer  recorded  in  "The  Journal,"  but  are 
recorded  instead  in  the  Sales  Journal,  and,  from  this  book,  are 
posted  to  accounts  in  the  ledger. 

Form  of  Sales  Journal. — Sales  Journals  have  no  special  form. 
With  the  use  of  mechanical  devices,  such  as  the  billing  machine, 
it  is  possible  to  make  in  one  operation  several  impressions,  such 
as  the  invoice,  the  carbon  copy,  and  the  sales  sheet  record. 
The  modem  Sales  Journal,  or  "Sales  Book"  as  it  is  usually 
called,  is  therefore  merely  a  binder  containing  the  sales  sheets 
or  a  binder  containing  the  invoice  carbons.  Postings  are  made 
daily  to  the  debit  side  of  customers'  accounts  (or  in  accounts 
treated  as  customers'  accounts,  such  as  C.  O.  D.  Account)  in 
the  ledger,  from  either  the  sales  sheet  or  invoice  carbon.  The 
total  sales  is  posted  periodically,  but  usually  at  the  end  of  each 
month,  to  the  credit  side  of  the  Sales  Account  in  the  ledger. 

In  the  following  illustration  showing  the  manner  in  which 
transactions  are  recorded  in  the  Sales  Journal,  March  trans- 
actions have  been  used.     (Illustration  No.  62.) 

Note  that  the  first  money  column  is  used  for  extension  of 
items,  and  that  the  second  money  column  is  used  for  the  amount 
to  be  carried  to  the  debit  side  of  the  account  in  the  ledger. 

In  the  illustration  shown  opposite,  it  will  be  noticed  that  the 
individual  items  were  posted  to  the  debit  side  of  their  respective 
accounts  as  indicated  in  the  ledger  folio  column.  In  actual 
practice,  these  items  are  posted  daily.  The  total  sales  for  the 
month  was  posted  to  the  credit  side  of  the  Sales  Account. 


Illustration  No.  62 


INTENTIONAL  SECOND  EXPOSURE 


70 


BOOKKEEPING,   THEORY   AND   PRACTICE 


>'. 


The  account  entitled  "Expense"  is  here  used  as  a  general 
expense  account.  To  it  are  charged  only  such  items  of  expense 
as  cannot  properly  be  charged  to  any  of  the  particular  expense 
accounts. 

Such  accounts  as  cartage,  rent,  light,  telephone,  etc.,  are 
merely  subdivisions  of  a  single  expense  account.  Therefore,  at 
the  time  of  closing  the  books,  they  are  treated  in  the  same 
manner  in  which  the  "Expense  Account"  was  treated  in  closing 
the  books  at  February  28,  19—,  i.e.,  the  balance  of  each  account 
is  closed  into  profit  and  loss  account. 

THE    SALES    JOURNAL 

Sales  Journal  defined.— The  Sales  Journal  is  a  book  of  orig- 
inal entry  in  which  are  recorded  all  charges  against  customers. 

When  a  special  journal  is  used  for  sales  transactions,  such 
transactions  are  no  longer  recorded  in  "The  Journal,"  but  are 
recorded  instead  in  the  Sales  Journal,  and,  from  this  book,  are 
posted  to  accounts  in  the  ledger. 

Form  of  Sales  Journal. — Sales  Journals  have  no  special  form. 
With  the  use  of  mechanical  devices,  such  as  the  billing  machine, 
it  is  possible  to  make  in  one  operation  several  impressions,  such 
as  the  invoice,  the  carbon  copy,  and  the  sales  sheet  record. 
The  modern  Sales  Journal,  or  "Sales  Book"  as  it  is  usually 
called,  is  therefore  merely  a  binder  containing  the  sales  sheets 
or  a  binder  containing  the  invoice  carbons.  Postings  are  made 
daily  to  the  debit  side  of  customers'  accounts  (or  in  accounts 
treated  as  customers'  accounts,  such  as  C.  O.  D.  Account)  in 
the  ledger,  from  either  the  sales  sheet  or  invoice  carbon.  The 
total  sales  is  posted  periodically,  but  usually  at  the  end  of  each 
month,  to  the  credit  side  of  the  Sales  Account  in  the  ledger. 

In  the  following  illustration  showing  the  manner  in  which 
transactions  are  recorded  in  the  Sales  Journal,  March  trans- 
actions have  been  used.     (Illustration  No.  62.) 

Note  that  the  first  money  column  is  used  for  extension  of 
items,  and  that  the  second  money  column  is  used  for  the  amount 
to  be  carried  to  the  debit  side  of  the  account  in  the  ledger. 

In  the  illustration  shown  opposite,  it  will  be  noticed  that  the 
individual  items  were  posted  to  the  debit  side  of  their  respective 
accounts  as  indicated  in  the  ledger  folio  column.  In  actual 
practice,  these  items  are  posted  daily.  The  total  sales  for  the 
month  was  posted  to  the  credit  side  of  the  Sales  Account. 


Illustration  No.  62 


t 


I 


I 


LECTURES    VII-VIII 


71 


Form  of  Abstract  Sales  JoumaL — In  addition  to  this  sales 
book,  there  is  frequently  used  in  business  an  Abstract  Sales 
Journal  for  the  purpose  of  classifying  sales  as  to  classes  of 
merchandise,  geographical  sales,  territories,  agency  sales,  etc. 
The  Abstract  Sales  Journal  is  a  columnar  ruled  book  in  which 
provision  is  made  for  date,  invoice  number,  name  of  customer, 
amount,  and  numerous  distribution  columns.  The  number  of 
distribution  columns  varies  to  meet  individual  needs. 

Method  of  recording  transactions  in  the  Abstract  Sales  Jour- 
nal.— In  the  recording  of  transactions  in  the  Abstract  Sales 
Journal,  details  are  omitted.  A  single  line  is  usually  used  for 
each  transaction.  The  date  of  the  invoice,  the  invoice  number, 
the  name  of  the  customer  or  account  to  be  debited,  and  the 
amount  of  the  invoice  are  written  in  their  respective  coltunns. 
The  amount  or  amounts  to  be  credited  are  written  in  the  dis- 
tribution columns. 

Use  of  the  Abstract  JoumaL — The  Abstract  Sales  Journal 
may  be  used  as  a  book  of  account  or  as  a  memorandum  book. 
It  is  used  as  a  book  of  account  if  postings  are  made  from  it 
to  accounts  in  the  ledger.  Such  is  usually  the  case  when  more 
than  one  account  is  to  be  credited  at  the  end  of  the  month. 
The  individual  items  are  usually  posted  from  the  Sales  Journal 
to  the  debit  side  of  accounts  in  the  ledger.  Totals  are  posted 
at  the  end  of  the  month  from  the  Abstract  Sales  Journal  to  the 
credit  side  of  accounts  in  the  ledger. 

The  Abstract  Sales  Journal  is  used  as  a  memorandum  book 
if  no  postings  are  made  from  it  to  accounts  in  the  ledger.  Such 
is  the  case  when  sales  are  classified  for  some  reason  or  other, 
and  only  one  account  is  to  be  credited  at  the  end  of  the  month. 
All  the  individual  items  as  well  as  the  total  sales  are  then  posted 
from  the  Sales  Journal. 

THE  PURCHASE  JOURNAL 

Purchase  Journal  defined. — ^A  Purchase  Journal  is  a  book  of 
original  entry  in  which  are  recorded  all  incoming  invoices  re- 
ceived from  creditors  that  are  not  immediately  paid. 

When  a  separate  book  is  introduced  for  the  recording  of  pur- 
chases, invoices  received  from  creditors  covering  transactions 
on  account  are  no  longer  recorded  in  the  book  known  as  "The 
Journal,'*  but,  instead,  are  recorded  in  the  Purchase  Journal, 
from  which  book  postings  are  made  to  accounts  in  the  ledger. 


Ii 


iiai^A^^ 


72 


BOOKKEEPING,   THEORY  AND   PRACTICE 


Form  of  Purchase  JoumaL — The  Purchase  Journal  usually 
takes  the  form  of  a  columnar  ruled  book  in  which  provision  is 
made  for  date,  invoice  number,  name  of  creditor,  ledger  folio, 
amount,  and  numerous  money  columns  known  as  distribution 
columns.  The  number  of  distribution  columns  vary  to  meet 
individual  needs.  A  sufficient  number  of  distribution  columns, 
however,  should  be  provided  for  at  least  such  accounts  as  are 
frequently  used.  A  column  headed  "Other  Accounts,"  sup- 
ported by  a  money  column,  is  used  for  accounts  to  be  debited, 
for  which  no  special  or  individual  column  has  been  provided. 

Method  of  recording  transactions  on  the  Purchase  Journal. — 
In  recording  transactions  on  the  Purchase  Journal,  details  are 
omitted.  A  single  line  is  commonly  used  for  each  transaction. 
The  date  of  entry,  the  name  of  the  creditor,  and  the  amount 
to  be  credited  to  the  creditor's  account  are  written  in  their 
respective  columns.  The  amount  or  amounts  to  be  debited  are 
written  in  the  proper  distribution  columns.  In  Illustration  No. 
63,  showing  the  manner  in  which  transactions  are  recorded  on 
the  Purchase  Journal,  March  transactions  have  been  used. 

Posting  from  the  Purchase  Journal. — Each  item  in  the  amount 
column  is  posted  to  the  credit  of  the  individual  creditor's  account. 
In  actual  practice  these  postings  are  made  daily.  The  remain- 
ing columns  are  posted  in  total  at  the  end  of  each  month  to  the 
debit  side  of  their  respective  accounts  in  the  Ledger.  Before 
posting  totals  at  the  end  of  the  month,  it  is  advisable  to  test 
the  equilibrium  of  the  Purchase  Journal;  i.e.,  to  see  whether 
or  not  the  sum  of  the  debits  is  equal  to  the  sum  of  the  credits. 

In  the  illustration  shown  above,  it  will  be  noticed  that  the 
items  in  the  amount  column  have  been  posted  to  the  credit  of 
the  individual  creditors*  accounts  as  indicated  in  the  ledger  folio 
colimm.  Thus,  postings  to  the  extent  of  $10,510  were  made 
to  the  credit  of  accounts  in  the  Ledger.  The  items  in  the  other 
coliunns  were  posted  in  total  to  the  debit  of  their  respective 
accounts  in  the  Ledger  at  the  end  of  the  month;  and,  as  a 
result,  debit  entries  amounting  to  $10,510  have  been  made. 

A  summary  journal  entry  is  sometimes  made  in  the  Purchase 
Journal,  at  the  end  of  each  month,  from  which  postings  are 
made.    To  illustrate : 


Summary 

Purchases 

$10,250.00 

Stationery  &  Printing 

20.00 

Insurance 

240.00 

To  Sundry  Creditors  (Posted) 

$10,510.00 


Illustration  No.  63 


PURCHASES 


INTENTIONAL  SECOND  EXPOSURE 


72 


BOOKKEEPING,   THEORY   AND    PRACTICE 


fH 


Form  of  Purchase  Journal. — The  Purchase  Journal  usually 
takes  the  form  of  a  columnar  ruled  book  in  which  provision  is 
made  for  date,  invoice  number,  name  of  creditor,  ledger  folio, 
amount,  and  numerous  money  columns  known  as  distribution 
columns.     The  number  of  distribution   columns   vary  to  meet 
individual  needs.     A  sufficient  number  of  distribution  columns, 
however,  should  be  provided  for  at  least  such  accounts  as  are 
frequently   used.     A   column   headed   "Other   Accounts,"    sup- 
ported by  a  money  column,  is  used  for  accounts  to  be  debited, 
for  which  no  special  or  individual  column  has  been  provided. 
Method  of  recording  transactions  on  the  Purchase  Journal. — 
In  recording  transactions  on  the  Purchase  Journal,  details  are 
omitted.     A  single  line  is  commonly  used  for  each  transaction. 
The  date  of  entry,  the  name  of  the  creditor,  and  the  amount 
to   be   credited  to  the   creditor's  account   are  written   in  their 
respective  columns.    The  amount  or  amounts  to  be  debited  are 
written  in  the  proper  distribution  columns.     In  Illustration  No. 
63,  showing  the  manner  in  which  transactions  are  recorded  on 
the  Purchase  Journal,  March  transactions  have  been  used. 

Posting  from  the  Purchase  Journal. — Each  item  in  the  amount 
column  is  posted  to  the  credit  of  the  individual  creditor's  account. 
In  actual  practice  these  postings  are  made  daily.  The  remain- 
ing columns  are  posted  in  total  at  the  end  of  each  month  to  the 
debit  side  of  their  respective  accounts  in  the  Ledger.  Before 
posting  totals  at  the  end  of  the  month,  it  is  advisable  to  test 
the  equilibrium  of  the  Purchase  Journal;  i.e.,  to  see  whether 
or  not  the  sum  of  the  debits  is  equal  to  the  sum  of  the  credits. 
In  the  illustration  shown  above,  it  will  be  noticed  that  the 
items  in  the  amount  column  have  been  posted  to  the  credit  of 
the  individual  creditors*  accounts  as  indicated  in  the  ledger  folio 
column.  Thus,  postings  to  the  extent  of  $10,510  were  made 
to  the  credit  of  accounts  in  the  Ledger.  The  items  in  the  other 
columns  were  posted  in  total  to  the  debit  of  their  respective 
accounts  in  the  Ledger  at  the  end  of  the  month;  and,  as  a 
result,  debit  entries  amounting  to  $10,510  have  been  made. 

A  summary  journal  entry  is  sometimes  made  in  the  Purchase 
Journal,  at  the  end  of  each  month,  from  which  postings  are 
made.    To  illustrate : 


Summary 
Purchases 

Stationery  &  Printing 
Insurance 

To  Sundry  Creditors  (Posted) 


$10,250.00 

20.00 

240.00 


$10,510.00 


Illustration  No.   63 


PURCHASES 


(1 


Ji 


LECTURES    VII-VIII 


PROMISSORY    NOTES 


73 


Definition. — "A  promissory  note  is  an  unconditional  promise 
in  writing  made  by  one  person  and  signed  by  him,  engaging  to 
pay  on  demand,  or  at  a  fixed  or  determinable  future  time,  a 
sum  certain  in  money  to  the  order  of  another  person  or  to 
bearer."     (Huffcut.) 

The  parties  to  a  note  are  legally  known  as  the  "maker"  and 
the  "payee."  The  party  who  makes  the  note  and  whose  promise 
is  contained  therein  is  known  as  the  "maker"  or  "payor."  The 
party  to  whom  the  promise  is  made  is  known  as  the  "payee." 

Notes  are  usually  made  payable  a  certain  number  of  days, 
months,  or  years  after  date,  at  the  office  of  the  maker  or  at 
his  bank,  and,  if  payable  with  interest,  the  words  "with  interest" 
are  written  on  the  face  of  the  note. 

Why  notes  are  accepted  in  settlement  of  accounts. — It  often 
happens  that  invoices  and  accounts  when  due  cannot  be  paid 
because  the  necessary  cash  is  not  available,  in  which  case  settle- 
ment of  accounts  is  frequently  made  by  notes.  Merchants  in 
such  cases  usually  prefer  to  take  a  debtor's  note  rather  than 
to  carry  the  amount  due  on  open  account. 

All  amounts  due  on  open  account  only  represent  implied 
promises  on  the  part  of  the  debtors  to  pay,  whereas  notes  are 
written  promises  to  pay,  and  have  a  greater  value  in  a  suit  at 
law  because  they  are  considered  conclusive  evidence  of  a  debt 
owed  by  the  maker,  a  condition  which  is  not  true  of  open  ac- 
counts. Moreover,  notes  can  be  converted  into  cash  more  read- 
ily and  under  more  favorable  conditions  than  open  accounts, 
for  banks  will  discount  notes  but  not  open  accounts^ 

Because  of  these  facts,  it  is  customary,  whenever  notes  are 
received  by  us  from  customers  or  given  by  us  to  creditors,  to 
treat  the  customers'  and  creditors'  accounts  as  having  been  paid 
and  to  record  in  separate  accounts  the  amounts  of  the  notes 
received  and  the  amounts  of  the  notes  given. 

The  account  used  for  recording  the  amounts  of  the  notes 
received  is  known  as  the  "Notes  Receivable  Account." 

The  account  used  for  recording  the  amounts  of  the  notes 
given  is  known  as  the  "Notes  Payable  Account." 

Notes  Receivable. — For  the  purpose  of  illustrating  the  entries 
to  be  made  on  receipt  of  notes  from  customers,  let  us  assume 
that  John  Doe  owes  us  $500  on  open  account,  and  gives  us  in 
settlement  his  non-interest  bearing  note,  due  in  60  days. 


I ' 


i    1 

f  I 

/I 


e 


74 


BOOKKEEPING,   THEORY   AND   PRACTICE 


If  John  Doe  had  paid  us  in  cash,  our  entry  expressed  in  ac- 
count form  would  have  been  as  follows : 


Illustration  No.  64 


John  Doe 


Cash 


Balance         $500 


$500    (i) 


(i)    $500 


Substituting  for  "cash"  that  which  was  received,  viz.,  a  note, 
the  double  entry  expressed  in  account  form  is  as  follows: 

Illustration  No.  65 
John  Doc  Notes  Receivable 


Balance         $500 


$500     (I) 


(i)     $500 


By  debiting  "Notes  Receivable  Account,"  and  crediting  "John 
Doe's  Account,"  we  have  merely  recorded  a  change  in  the  assets 
of  the  business.  Instead  of  having  $500  due  on  open  account, 
the  business  now  has  $500  due  on  a  note  which  it  holds. 

The  entry  to  be  made  when  the  note  is  paid,  expressed  in 
account  form,  is  as  follows: 


Illustration  No.  66 


Notes  Receivable 


Cash 


Balance         $500 


$500     (i) 


(i)    $500 


Cash  must  be  debited  with  $500,  because  the  asset  "Cash" 
has  been  increased;  and  "Notes  Receivable"  must  be  credited 
because  the  asset  "Notes  Receivable"  has  been  decreased. 

Notes  are  always  recorded  on  the  hooks  at  their  face  amount. 
Therefore,  if  John  Doe  were  to  give  us  his  note  for  $500  pay- 
able in  60  days  Tvith  interest  at  6%,  the  entry  would  be  the  same 
as  in  the  case  of  a  non-interest  bearing  note,  viz.,  "Notes  Receiv- 
able" $500  to  John  Doe. 

The  entry  to  be  made  when  the  note  is  paid,  expressed  in 
account  form,  is  as  follows : 


LECTURES    VII-VIII 


75 


Illustration  No.  67 
Notes  Receivable 


Balance 


$500 


Cash 


$500    (r) 


Interest  &  Discount  Earned 


(O    $505 


$5     (I) 


"Cash"  must  be  debited  with  $505,  because  that  amount  of 
cash  was  actually  received.  "Notes  Receivable"  must  be  cred- 
ited with  $500,  because  the  business  parts  with  an  asset  recorded 
on  the  books  at  that  amount;  and  since  the  difference  ($5)  be- 
tween the  face  amount  of  the  note  and  the  cash  received  repre- 
sents interest  earned,  a  "gain"  account  such  as  "Interest  & 
Discount  Earned"  must  be  credited. 

The  note  is  sometimes  made  with  interest  included  in  the  face 
amount  of  the  note,  instead  of  being  made  payable  "with  inter- 
est," in  which  case  the  amount  of  the  interest  is  recorded  on 
the  books  when  the  note  is  received. 

To  illustrate.  Let  us  assume  that  John  Doe  gives  us  his 
note  for  $505  payable  in  60  days,  in  settlement  of  his  account, 
in  amount  $500.  The  entry  to  be  made  on  receipt  of  the  note,, 
expressed  in  account  form,  is  as  follows : 

Illustration  No.  68 
John  Doe 


Balance         $500 


Notes  Receivable 


$500     (i) 


Interest  &  Discount  Earned 


(i)     $505 


$5     (I) 


"Notes  Receivable  Account"  must  be  debited  with  $505,  be- 
cause a  note  for  that  amount  was  received;  "John  Doe's  Ac- 
count" must  be  credited  with  $5CX),  because  the  amount  owing 
by  him  on  open  account  has  been  decreased  to  that  extent;  and 
"Interest  and  Discount  Earned  Account"  must  be  credited  with 
the  difference  ($5),  which  represents  interest  for  60  days  on 
the  amount  of  the  indebtedness,  $500. 


I, 


^^1 


76 


BOOKKEEPING,   THEORY  AND   PRACTICE 


The  entry  to  be  made  when  the  note  is  paid  is  as  follows : 

Illustration  No.  dp^ 
Notes  Receivable  Cash 


Balance         $505 


$505     (i) 


(I)     $505 


Notes  payable.— For  the  purpose  of  illustrating  the  entry  to 
be  made  when  a  note  is  given  by  us,  let  us  assume  that  we  owe 
James  Smith  $1,000  on  open  account  and  that  we  give  him,  in 
settlement,  our  non-interest  bearing  note,  due  in  60  days. 

If  we  were  to  pay  James  Smith  $i/xx>  in  cash,  the  double 
entry  expressed  in  account  form  would  be  as  follows : 

Illustration  No.  70 
James  Smith  Cash 


(i)    $1,000 


Balance       $r,ooo 


$1,000    (i) 


If  we  now  substitute  for  cash  that  which  was  given,  viz.,  a 
note,  the  double  entry  expressed  in  account  form  is  as  follows : 

Illustration  No.  71 
James  Smith  Notes  Payable 


(i)     $1,000 


Balance       $r,ooo 


$1,000     (i) 


By  debiting  "James  Smith's  Account"  and  crediting  "Notes 
Payable  Account,"  we  have  merely  recorded  a  change  in  the 
Habilities  of  the  business.  Instead  of  owing  James  Smith  $1,000 
on  open  account,  we  now  owe  $1,000  on  a  note  which  we  have 
given. 

The  entry  to  be  made  when  the  note  is  finally  paid  is  as  fol- 
lows: 


Illustration  No.  72 


Notes  Payable 


Cash 


(i)    $r,ooo 


Balance       $1,000 


$1,000    (i) 


LECTURES    VII-VIII 


77 


"Notes  Payable  Account"  must  be  debited,  because  a  liability 
in  the  form  of  a  note  has  been  paid;  and  "Cash  Account"  must 
be  credited,  because  cash  was  given. 

If  we  were  to  give  James  Smith  our  note  for  $1,000  payable 
in  60  days  with  interest  at  6%,  the  entry  would  be  the  same  as 
in  the  case  of  the  non-interest  bearing  note,  viz.,  James  Smith 
$1,000  to  "Notes  Payable,"  because  notes  are  always  recorded 
on  the  books  at  their  face  amount. 

The  entry  to  be  made  when  the  note  is  paid,  expressed  in 
account  form,  is  as  follows  : 

Illustration  No.  73 
Notes  Payable 


(1)     $1,000 


Interest  &  Discount  Expense 


Balance       $1,000 


Cash 


(i)     $10 


$1,010     (i) 


"Notes  Payable  Account"  must  be  debited  with  $1,000,  because 
a  note  recorded  on  the  books  at  that  amoimt  has  been  paid; 
and  an  expense  account  such  as  "Interest  and  Discount  Expense" 
must  be  debited  with  $10,  because  interest  paid  by  the  business 
is  an  expense.  "Cash  Account"  must  be  credited  with  $1,010, 
because  that  amount  of  cash  was  actually  paid. 

If  we  were  to  give  James  Smith  our  note  for  $1,010  due  in 
60  days  in  payment  of  his  account,  $1,000  and  interest  $10,  the 
entry  to  be  made,  at  the  time  the  note  is  given,  expressed  in 
account  form  is  as  follows: 


II 


(i 


"I 


Illustration  No.  74 
James  Smith 


(i)     $1,000 


Balance       $1,000 


V 


Interest  &  Discount  Expense 


(i)     $10 


Notes  Payable 


$1,010    (i) 


a 


78 


BOOKKEEPING,   THEORY   AND   PRACTICE 


LECTURES    VII-VIII 


79 


The  entry  to  be  made  when  the  note  is  finally  paid  is  as  fol- 
lows: 

Illustration  No.  75 
Notes  Payable  Cash 


(i)    $r,oio 


Balance       |i,oio 


$1,010     (i) 


Procedure  in  recording  notes.— Notes  received  or  given  are 
usually  recorded  in  the  journal  except  when  they  are  received 
or  given  in  large  numbers,  in  which  case  a  separate  book  of 
original  entry  is  used  known  as  the  "Notes  Receivable  and 
Notes  Payable  Book." 

The  "Notes  Receivable  and  Notes  Payable  Book"  is  divided 
into  two  parts:  in  one  part  of  the  book,  notes  receivable  are 
recorded;  in  another  part,  notes  payable.  In  some  instances, 
a  separate  book  is  kept  for  each  kind. 

The  "Notes  Receivable  and  Notes  Payable  Book"  may  be 
used  as  a  memorandum  book  or  as  a  book  of  original  entry. 
It  is  used  as  a  memorandum  book  when,  in  the  journal,  notes 
received  and  given  are  recorded,  from  which  book  they  are 
posted  to  the  Ledger  and  in  addition  thereto  are  recorded  as 
a  memorandum  in  the  "Notes  Receivable  and  Notes  Payable 
Book."  It  is  used  as  a  book  of  original  entry  when  notes  re- 
ceived and  given  are  recorded  only  in  the  "Notes  Receivable 
and  Notes  Payable  Book,"  from  which  they  are  posted  to  the 
Ledger. 

Notes  received  from  customers  are  usually  held  in  the  safe 
until  a  short  time  before  they  fall  due,  (allowance  is  made  for 
out-of-town  notes),  and  are  then  endorsed  and  sent  to  the 
bank  for  collection.  No  entry  is  made  by  us  when  a  note  is 
sent 'to  the  bank  for  collection,  because  the  bank  is  merely  acting 
as  our  agent. 

When  the  note  is  paid  by  the  maker,  the  bank  will  record 
the  amount  of  the  proceeds  in  the  Bank  Pass  Book;  and  the 
entry  covering  the  payment  of  the  note  is  then  made  on  our 
books.  If  the  note  is  not  paid,  it  will  be  returned  to  us  by  the 
bank,  at  which  time  we  make  an  entry  reversing  the  entry 
originally  made  on  receipt  of  the  note. 

Notes  given  by  us  may  be  made  payable  either  at  our  office 
or  at  our  bank.  As  a  rule,  notes  are  made  payable  at  the  bank. 
If  payable  at  our  office,  the  note,  when  presented,  will  be  paid 


by  check;  if  payable  at  our  bank,  it  is  presented  by  the  holder 
to  our  bank  where  it  is  paid  (if  we  have  the  necessary  funds 
on  deposit). 

How  interest  on  notes  is  calculated. — Interest  on  notes  is 
always  calculated  on  the  commercial  basis,  which  considers  the 
year  as  having  360  days  divided  into  12  months  of  30  days  each. 

Although  all  banks  use  the  commercial  basis  in  calculating 
interest  on  notes  left  with  them  for  collection,  yet  they  differ 
in  the  manner  in  which  they  arrive  at  the  number  of  days  on 
which  interest  is  to  be  calculated.  To  illustrate.  Let  us  assume 
that  notes  dated  Feb.  i,  each  in  the  amount  of  $500  and  payable 
in  3  months  with  interest  at  6%,  were  left  with  different  banks 
for  collection;  it  would  be  found  that  some  banks  would  collect 
90  days'  interest  whereas  other  banks  would  collect  only  89 
days'  interest. 

Most  country  banks  and  some  city  banks  make  it  a  rule,  in 
calculating  interest  on  notes  left  with  them  for  collection,  to 
charge  only  for  the  actual  number  of  days  between  the  date 
of  the  note  and  payment  thereof.  Thus  a  note  dated  Feb.  i, 
due  in  3  months  is  payable  on  May  i  or  89  days  after  date. 
Therefore,  they  charge  only  89  days'  interest.  Whereas  other 
banks  are  governed  in  charging  interest  by  the  time  specified 
in  the  instrument,  which  in  this  case  is  3  months,  or  90  days. 
But  in  discounting  notes,  all  banks  use  the  same  method  for 
arriving  at  the  nimiber  of  days  on  which  interest  is  to  be  cal- 
culated; viz.,  they  take  the  number  of  days  between  the  date 
of  discount  and  the  date  of  payment.  Additional  interest  is 
also  charged  in  all  cases  on  notes  falling  due  on  a  Saturday 
or  Sunday,  because  notes  falling  due  on  either  of  those  two 
days  will  not  be  paid  until  the  following  Monday. 

Methods  used  for  calculating  commercial  interest — ^The  fol- 
lowing formulae  will  be  of  assistance  in  calculating  commercial 
interest : 


(a) 

60-day 

Method 

Principal    equals    interest 

for 

12 

mos. 

or 

360 

days 

at    1%,  or 

100 

a 

6 

« 

it 

180 

tt 

**     2%,  or 

M 

u 

4 

(( 

(f 

120 

tt 

"     3%,  or 

« 

*{ 

3 

it 

K 

go 

tt 

"     4%.  or 

« 

tt 

2 

it 

tt 

60 

tt 

"     6%,  or 

M 

M 

I 

u 

*i 

30 

u 

"   12% 

il 


(J 


I 


I 


8o 


BOOKKEEPING,    THEORY    AND    PRACTICE. 


LECTURES    VII-VIII 


8l 


Problem:     What  is  the  interest  on  $200  for  3  months  at  6%? 
Solution : 

$200- divided  by  100  equals  $2  interest  for  2  months. 
$2   (the  interest  for  2  months) 
divided  by  2   (number  of  mos.) 

equals  $1  interest  for  i  month. 
Therefore,  $3  is  the  int.  for  3  mos. 

(b)    36%  Method 

Principal  X  (times)  number  of  days  equals  interest  at  36%. 

1000 
Interest  at  36%  equals  interest  at  6%. 


'o. 


Problem:     What  is  the   interest  on  $200  for  90  days  at 
Solution : 

Principal,  $200,  X  number  of  days  (90)  equals  $18,000. 

$18,000  divided  by  1000  equals  $18.00  (interest  at  36%). 

$18  (interest  at  36%)  divided  by  6  equals  $3  (interest  at   6%). 

(f)     Interest  for  one  day  by  6%  Method 
Principal 


1000       equals  interest  for  one  day  at  oyo. 

Problem:     What  is  the  interest  on  $200  for  90  days  at  6%? 
Solution : 

$200  divided  by  1000  equals  20  cents. 

$  .20       "         "        6        "      -03333  1-3  cents  interest  for  one  day. 

•03333  1-3  (interest  for  one  day)  times  90  days  equals  $3.00, 
interest  on  $200  for  90  days  at  6%. 

DISCOUNTING    NOTES 

What  is  meant  by  discounting  notes. — ^When  a  merchant 
whose  credit  is  good  is  in  need  of  ready  cash  with  which  to 
conduct  his  business,  he  usually  looks  to  the  bank  to  advance 
credit  on  his  own  note,  or  on  notes  which  he  has  received  from 
his  customers. 

The  bank  is  said  to  discount  a  note  when  it  credits  the  mer- 
chant's account  with  the  "proceeds"  of  a  note.  By  "proceeds" 
is  meant  the  amount,  at  maturity,  of  a  note  or  draft  less  the 
interest  at  a  certain  percent  from  the  date  of  discount  to  the 
date  of  payment. 

Thus  the  bank  advances  its  credit  to  a  merchant  in  con- 
sideration of  simple  interest  for  the  period  of  time  the  loan 
or  advance  is  to  run.  If  the  interest  is  deducted  by  the  bank 
when  it  makes  the  advance  it  is  called  "discount"  instead  of 
interest,"  and  the  advance  is  called  in  the  parlance  of  bankers, 
a  discount."  If  the  interest  is  payable  at  maturity,  the  ad- 
vance is  called  "a  loan." 


« 


(f 


How  bank  discount  is  calculated.— We  have  already  learned 
that  bank  discount  is  simple  interest  paid  or  received  in  advance. 
Banks  usually  charge  interest  on  the  commercial  (360  day) 
basis  for  the  exact  number  of  days  from  the  date  on  which  the 
note  is  discounted  to  the  date  on  which  the  note  will  be  paid, 
regardless  of  whether  the  note  is  made  payable  in  a  certain 
number  of  days  or  months  after  date.  To  illustrate.  Let  us 
assume  that  a  note,  in  amount  $500,  dated  Feb.  i,  paySkble  three 
months  after  date,  is  discounted  at  the  bank  on  Feb.  15.  The 
note  is  due  on  May  i.  Therefore  the  bank  would  charge  interest 
or  discount  as  it  is  called  from  Feb.  15  to  May  i  (the  time 
during  which  it  advances  its  credit)  which  is  75  days.  If  the 
note  in  question  were  made  payable  in  90  days  instead  of  3 
months,  it  would  be  payable  on  May  2,  instead  of  on  May  i. 
Therefore,  the  bank  would  charge  interest  from  Feb.  15  to  May 
2  which  is  76  days. 

It  should  be  borne  in  mind  that  an  additional  day's  interest 
is  charged  on  discounted  notes  which  fall  due  on  a  legal  holiday 
or  on  Sunday.  In  the  states  in  which  Saturday  afternoon  is  a 
legal  holiday,  notes  which  fall  due  on  Saturday  are  not  pre- 
sented for  payment  until  the  following  Monday.  In  this  case, 
two  days'  additional  interest  is  charged. 

The  bank  charges  interest  or  discount,  as  it  is  called,  on  the 
amount  which  it  will  collect  at  maturity  of  the  note.  In  the 
case  of  an  interest-bearing  note,  the  bank  will  collect  at  matur- 
ity not  only  the  amount  shown  on  the  face  of  the  note,  but  also 
the  interest  on  the  note. 

Procedure  in  discounting  notes. — When  we  discount  our  own 
paper,  we  make  a  non-interest  bearing  note,  payable  to  the  bank 
at  which  it  is  to  be  discounted,  and  then  take  it  to  the  bank. 

When  we  discount  a  note  received  from  a  customer,  we  en- 
dorse the  note  and  take  it  to  the  bank  for  discount.  (Notes  or 
drafts  left  with  the  bank  for  discount  must  not  be  confused 
with  notes  or  drafts  left  with  the  bank  for  collection.) 

We  have  already  learned  that  no  entry  is  made  on  our  books 
of  account  when  we  leave  a  note  or  draft  with  the  bank  for 
collection,  because  the  bank,  in  making  collection,  merely  acts 
as  our  agent,  and  therefore  does  not  credit  our  account  until 
it  receives  payment  on  the  note  or  draft.  Hence,  not  until  the 
note  or  draft  is  paid  is  an  entry  made  on  our  books;  whereas 
when  we  discount  a  note  at  the  bank,  the  bank  immediately 
advances  the  proceeds  of  the  note  in  the  form  of  a  credit  to 


W 


82 


BOOKKEEPING,   THEORY   AND    PRACTICE 


our  account.  Therefore,  an  entry  on  our  books  must  be  made 
immediately  on  discounting  a  note. 

The  sources  of  information  from  which  the  entry  covering 
the  discounting  of  a  note  is  made  on  our  books,  is  the  state- 
ment received  from  the  bank  which  shows  the  amount  at  matur- 
ity of  the  note,  the  amount  of  the  discount  deducted  by  the 
bank,  and  the  amount  (proceeds)  credited  to  our  account. 

Entries  to  be  made  when  we  discount  our  own  note. — Let  us 
assume  for  the  purpose  of  illustration  that  we  discount,  at  the 
bank  on  April  i,  our  own  note  dated  April  i,  in  amount  $5,000, 
payable  in  three  months;  and  that  the  rate  of  discount  is  6%. 
In  this  case,  the  double  entry  expressed  in  account  form  is  as 
follows : 


Cash 


(i)  $4,929.17 


Illustration  No.  76 

Interest  &  Discount 
Expense 


(I)  $75.83 


Notes  Payable 


$5,000  (I) 


Note  that  $75.83  is  the  discount  on  $5,000  for  91  days  (April  i 
to  July  i)  at  6%. 

Since  we  created  a  liability  of  $5,000  and  acquired  an  asset 
of  only  $4,924.17,  it  follows  that  we  incurred  an  expense  of 
$75.83.  Therefore  "Cash  Account"  must  be  debited  for  the 
amount  of  cash  received,  "Interest  and  Discount  Expense  Ac- 
count" must  be  debited  for  the  amount  of  the  discount  expense, 
and  "Notes  Payable  Account"  must  be  credited  for  the  amount 
of  the  note  given.  By  debiting  "Cash  Account,"  we  are  record- 
ing an  increase  in  assets;  by  debiting  "Interest  and  Discount 
Expense  Account,"  we  are  recording  a  decrease  in  proprietor- 
ship; by  crediting  "Notes  Payable  Account,"  we  are  recording 
an  increase  in  liabilities. 

The  entry  to  be  made  when  the  note  is  paid  by  us  on  July  i 
is  as  follows: 


Notes  Payable 


Illustration  No.  77 


Cash 


(I)    $5,000 


Balance       $5,000 


$5,000  (I) 


LECTURES    VII-VIII 


83 


"Notes  Payable  Account"  must  be  debited,  because  a  debt 
in  the  form  of  a  note  payable  is  paid;  and  "Cash  Account" 
must  be  credited,  because  cash  is  given.  By  debiting  "Notes 
Payable  Account,"  we  are  recording  a  decrease  in  liabilities; 
and  by  crediting  "Cash  Account,"  we  are  recording  a  decrease 
in  assets. 

Entries  to  be  made  when  we  discount  a  customer's  note.— 

Let  us  assume,  for  the  purpose  of  illustration,  that  we  discount 
at  the  bank  on  April  15,  a  non-interest  bearing  note  dated  April  i, 
in  amount  $1,200,  due  in  60  days,  received  from  a  customer,' 
and  that  the  rate  of  discount  is  6%.  In  this  case,  the  double 
entry  expressed  in  account  form  is  as  follows  : 


Illustration  No.  78 
Notes    Receivable 


Balance       $1,200 


Interest  &  Discount  Expense 


(i)     $9.20 


$r,2oo    (i) 


Cash 


(i)     $1,190.80 


(i 


Note  that  $9.20  is  the  discount  on  $1,200  for  46  days  ( April  i<; 
to  May  31)  at  6%.  J    ^    f        :> 

Since  we  part  with  a  note  recorded  on  our  books  at  $1  200 
m  exchange  for  $1,190.80  in  cash,  it  follows  that  we  incur  an 
expense  of  $9.20.  Therefore,  "Cash  Account"  must  be  debited 
because  cash  was  received;  "Interest  and  Discount  Expense 
Account"  must  be  debited,  because  an  expense  has  been  in- 
curred; and  "Notes  Receivable  Account"  must  be  credited,  be- 
cause a  note  received  from  a  customer  was  given.  By  debiting 
"Cash  Account,"  we  are  recording  an  increase  in  assets;  by 
debitmg  "Interest  and  Discount  Expense  Account,"  we  are 
recording  a  decrease  in  proprietorship ;  and  by  crediting  "Notes 
Receivable  Account,"  we  are  recording  a  decrease  in  assets. 

Now  let  us  assume  that  the  above  note  bore  interest  at  the 
rate  of  6%  per  annum.  In  this  case  the  bank  would  calculate 
the  discount  as  follows : 


1^1 


\1 


84  BOOKKEEPING,   THEORY   AND   PRACTICE. 

Illustration  No.  79 

Principal     $1,200. 

Add  interest  for  60  days  at  6% 12. 

Amount  at  maturity  of  the  note $1,212. 

Deduct  discount  at  6%  for  46  days  (April  15  to 
May  31)   $9  29 

Proceeds     $1,20271 


I  I 

^ 


i'l 


I 
II 


Although  we  discount  the  note  at  the  bank,  it  will  be  noticed 
that  we  receive  more  than  the  face  amount  of  the  note.  This 
is  due  to  the  fact  that  we  have  earned  the  interest  on  the  note 
from  the  date  thereof  to  the  date  of  discount  (April  i -April  15). 

The  entry  to  be  made,  expressed  in  account  form,  is  as  fol- 
lows: 

Illustration  No.  80 
Notes  Receivable 


Balance      $1,200 


Cash 


$1,200    (i) 


Interest  &  Discount  Earned 


(i)     $1,202.71 


$271     (i) 


Since  we  part  with  a  note  recorded  on  the  books  at  $1,200 
and  receive  in  exchange  $1,202.71  in  cash,  it  follows  that  we 
have  earned  $2.71.  Therefore,  "Cash  Account"  must  be  deb- 
ited, because  cash  was  received;  "Notes  Receivable  Account" 
must  be  credited,  because  a  note  received  from  a  customer  was 
given;  and  "Interest  and  Discount  Earned  Account"  must  be 
credited,  because  we  made  a  gain.  By  debiting  "Cash,"  we 
are  recording  an  increase  in  assets;  by  crediting  "Notes  Re- 
ceivable," we  are  recording  a  decrease  in  assets;  and  by  credit- 
ing "Interest  and  Discount  Earned,"  we  are  recording  an  in- 
crease in  proprietorship. 

"C.O.D."    ACCOUNT 

Introductory. — "C.O.D."  is  the  commercial  abbreviation  for 
"collect  on  delivery." 


LECTURES    VII-VIII 


85 


Almost  every  trading  and  manufacturing  business,  at  times, 
receives  orders  from  customers  whose  credit  is  doubtful.  In 
such  cases,  arrangements  are  made  to  ship  the  goods  C.O.D.; 
i.e.,  pa)rment  to  be  made  on  delivery  of  goods. 

In  some  instances,  no  entry  is  made  on  the  books  of  account 
when  the  goods  are  shipped.  On  receipt  of  the  cash,  an  entry 
is  made  charging  cash  accoimt  and  crediting  sales  account.  The 
transaction  is  thus  treated  as  a  cash  sale. 

The  better  method,  however,  is  to  keep  a  "C.O.D"  account 
in  the  ledger.  This  account,  which  is  in  the  nature  of  a  cus- 
tomer's account,  is  charged  whenever  goods  are  shipped  C.O.D., 
and  is  credited  when  payment  is  received.  A  control  over  such 
items  is  thus  established. 

In  the  illustration  which  follows,  it  will  be  observed  that 
two  of  the  four  C.O.D.  shipments  remain  unpaid. 

C.O.D. 


19— 

Nov.  6 
8 
8 
9 

Higgin  &  Co. 
I.  Cohen 
Broad  St.  Co. 
The  Arcade 

S.    $100 
S.      200 
S.      300 
S.      400 

19— 

Nov.  8 
9 

I.  Cohen 
The  Arcade 

C.    $200 
C     400 

QUESTIONS 

(i)  State  your  objections,  if  any,  to  the  "Merchandise" 
accoimt.  Describe  a  different  method  of  recording  the  trans- 
actions shown  by  that  account. 

(2)  State  the  fimctions  of  (a)  the  sales  journal;  (b)  the 
purchase  journal. 

(3)  Rule  the  form  of  a  purchase  journal  providing  for  10 
distribution  columns.  In  each  distribution  column  write  what 
you  would  consider  an  appropriate  heading. 

(4)  Rule  the  form  of  a  purchase  journal  providing  for  5 
distribution  columns.  Record  six  transactions  in  the  purchase 
journal  using  the  five  distribution  columns.  Using  skeleton 
(T)  ledger  accounts,  post  from  the  purchase  journal. 

(5)  Name  ten  expense  accounts  which  you  think  should  be 
kept  in  the  ledger  of  every  trading  concern. 

(6)  A.  Reid  gives  Taylor  Mfg.  Co.  his  note  for  $3,000  dated 
Jan.  30,  due  in  one  month,  payable  with  interest  at  6%  at  the 
Wall  Street  Trust  Co. 


>e 


86 


w 


BOOKKEEPING.    THEORY   AND    PRACTICE 


(a)  Write  the  note. 

(b)  Assuming  that  the  note  is    paid    at    maturity,  express: 
m  journal  form  all  the  entries  on  the  books  of  A.  Reid. 

(c)  Express  in  journal  form  all  the  entries  on  the  books 
of  Taylor  Mfg.  Co. 

(7)  On  Mar.  5,  A.  Reid  receives  a  note  in  amount  $i,ocx), 
payable  in  two  months  with  interest  at  6%,  from  Townsend 
&  Co.  On  Mar.  12,  he  discounts  the  note  at  his  bank.  The 
discount  rate  is  6%.  Make  all  the  necessary  entries  on  the 
books  of  A.  Reid. 

(8)  On  Mar.  12,  A.  Reid  discounts  at  the  Wall  Street  Trust 
Co.  his  note  in  amount  $2,000,  due  in  60  days.  Assuming  that 
the  note  is  paid  at  maturity,  make  all  the  necessary  entries. 


i 


f^ 


/I 


k 


w 


LECTURE    IX 

CONTROLLING   ACCOUNTS    AND    SUBSIDIARY 

LEDGERS 

Introductory.— At  one  time,  a  single  ledger  was  the  only  book 
of  final  entry  used  for  recording  business  transactions.  As  a 
matter  of  convenience,  this  ledger  was  usually  divided  into 
three  sections.  One  section  was  devoted  to  all  accounts  of  the 
business  other  than  customers'  and  creditors'  accounts;  the 
second  section  was  devoted  to  customers'  accounts;  and  the 
third  section  to  creditors'  accounts.  Such  a  system  was  found 
to  be  adequate  when  customers  and  creditors  were  compara- 
tively few  in  number.  But  when  customers  and  creditors  began 
to  increase  in  number,  accounts  with  them  could  no  longer  be 
conveniently  kept  in  one  ledger. 

As  an  illustration,  let  us  consider  the  case  of  a  concern  that 
has  several  thousand  customers'  accounts  and  several  hundred 
creditors'  accounts.  If  all  the  accounts  of  the  business  were 
kept  in  a  single  ledger,  certain  disadvantages  would  obtain. 
For  example,  only  one  man  could  be  engaged  in  posting  at 
any  given  time;  the  ledger  would  become  crowded  with  ac- 
counts, and  eventually  it  would  become  impossible  to  provide 
a  single  ledger  that  could  be  conveniently  handled  to  hold  all 
the  accounts  of  the  business ;  the  task  of  taking  a  trial  balance 
would  become  exceedingly  difficult,  since,  the  more  accounts 
there  are  in  a  ledger,  the  more  items  there  will  be  in  the  trial 
balance  and  hence  the  greater  will  be  the  chance  of  making 
errors;  and,  should  information  be  desired  regarding  the  total 
amount  due  from  customers  or  the  total  amount  due  to  creditors, 
such  information  could  be  had  only  by  extracting  the  balance  ojf 
every  customer's  and  every  creditor's  account  and  preparing  a 
statement  showing  the  total.  It  is  therefore  obvious  that  the 
use  of  a  single  ledger  is  limited  to  a  concern  having  compara- 
tively few  customers'  and  creditors'  accounts. 

The  modem  practice.— To  overcome  the  disadvantages  and 
limitations  of  the  single  ledger,  the  modem  practice  is  to  keep 
the  customers'  and  creditors'  accounts  in  subsidiary  ledgers 
known  respectively  as  the  Customers'  Ledger  and  the  Creditors' 


87 


88 


BOOKKEEPING,   THEORY  AND   PRACTICE 


Ledger,  and  to  establish  controlling  accounts  in  the  General 
Ivedger;  ..e.,  a  separate  ledger  is  kept  for  customers'  accounts 
only,  and  a  separate  ledger  is  kept  for  creditors'  accounts  A 
controlling  account  known  as  the  Customers'  Controlling  Ac- 
count IS  established  in  the  general  ledger,  which  reflects  in  total 
the  accounts  appearing  in  detail  in  the  subsidiary  ledger  A 
similar  account  known  as  the  Creditors'  Controlling  Account 
.s  estabhshed  m  the  general  ledger  for  creditors'  accounts 

By  this  system,  three  ledgers  are  kept;  viz.,  the  General  Ledger 
(the  ledger  from  which  the  trial  balance  is  taken),  the  Cus- 
tomers Ledger  (also  known  as  accounts  receivable  or  sales 
ledger),  and  the  creditors'  ledger  (also  known  as  accounts  pay- 
able or  purchase  ledger). 

Controlling  account  defined—A  controlling  account  is  a  single 
account  kept  m  the  General  Ledger  which  reflects,  in  total,  the 
condition  of  two  or  more  detail  accounts  of  the  same  type  as 
the  controlling  account.  Examples  of  controlling  accounts  are': 
the  Customers  Controlling  Account,  and  the  Creditors'  Con- 
trolling Account. 

The  principle  of  a  controlling  account  is  based  on  the  axiom 
that  the  whole  is  equal  to  the  sum  of  all  its  parts."  Thus  the 
Customers'  Controlling  Account  in  the  General  Ledger  repre- 
sents the  whole.  The  individual  customers'  accounts  'in  the 
Customers'  Ledger  represent  the  parts.  Therefore,  the  balance 
of  the  Customers'  Controlling  Account,  in  the  General  Ledger 
should  at  all  times  be  equal  to  the  sum  of  all  its  parts,  i.e.,  the 
mdividual  customers'  balances  in  the  Customers'  Ledger 

The  ledgers  in  which  the  parts,  i.e.,  the  details,  are  kept,  are 
called  subsidiary  ledgers. 

Subsidiary  ledger  defined.— A  subsidiary  ledger  is  a  book  of 
account  which  contains,  in  detail,  accounts  of  the  same  type 
Examples  of  the  most  commonly  used  subsidiary  ledgers  are- 
The  Customers',  or  Accounts  Receivable,  or  Sales  Ledger  •  the 
Creditors',  or  Accounts  Payable,  or  Purchase  Ledger 

How  controlling  accounts  are  established.-For  the  purpose 
of  illustrating  how  controlling  accounts  are  established,  let  us 
assume  that  the  following  accounts  are  open  in  the  ledger  of 
James  Smith : 


) 


LECTURE   IX 

Illustration  No.  St 

General  Ledger  of  J.  Smith 
Cash  J-  Smith,  Prop. 


89 


$2,000 


Furniture  &  Fixtures 


$14,100 


Notes  Payable 


$1,000 


Merchandise  Inventory 


$1,000 


J.  Moore 


$8,000 


Notes  Receivable 


$400 


D.  Brown 


$3,000 


$500 


A.  Duke 


L.  James 


$500 


O.  Bliss 


$600 


$600 


L.  Crane 


$700 


E.  Lee 


$800 


Note  that  the  ledger  is  in  balance. 


Let  us  also  assume  that  the  customers'  accounts,  of  which 
there  are  four  (Duke,  Bliss,  Crane,  and  Lee),  are  to  be  trans- 
ferred to  the  Customers'  Ledger,  and  a  Customers'  Controlling 


90 


BOOKKEEPING,   THEORY   AND   PRACTICE 


« 


« 


(< 


Account  is  to  be  established  in  the  General  Ledger  in  their 
stead ;  and  that  the  creditors'  accounts,  of  which  there  are  three 
(Moore,  Brown,  and  James),  are  to  be  transferred  to  the  Cred- 
itors' Ledger,  and  a  Creditors'  Controlling  Account  is  to  be 
established  in  the  General  Ledger  in  their  stead. 

The  journal   entry   necessary   to   effect   the   transfer   of   the 
customers*  accounts  is  as  follows: 

Illustration  No.  82 

Customers'  Controlling  Account  $2,600 

To  A.  Duke 
O.  Bliss 
L.  Crane 
E.  Lee 

To  transfer  the  customers*  accounts  to 
the  Customers'  Ledger  and  to  establish 
a  controlling  account. 

This  entry  effects  the  closing  of  the  customers'  accounts  in 
the  general  ledger  and  the  opening  of  the  Customers'  Control- 
ling Account  in  their  stead.  The  customers'  accounts  thus 
closed  in  the  general  ledger  must  now  be  opened  in  the  Cus- 
tomers' Ledger  since  the  customers  are  still  indebted  to  the 
concern. 

The  journal  entry  necessary  to  effect  the  transfer  of  the 
creditors*  accounts  is  as  follows : 

Illustration  No.  83 


$500 
600 
700 
800 


J.  Moore 
D.  Brown 
L.  James 

To  Creditors'  Controlling  Account 
To   transfer   the    creditors'   accounts    to 

the  Creditors'  Ledger  and  to  establish 

a  controlling  account. 


$400 

500 
600 


$1,500 


This  entry  effects  the  closing  of  the  creditors'  accounts  in  the 
General  Ledger  and  the  opening  of  the  Creditors'  Controlling 
Account  in  their  stead.  The  creditors'  accounts  thus  closed  in 
the  General  Ledger  must  now  be  opened  in  the  Creditors'  Ledger 
since  the  concern  is  still  indebted  to  the  creditors. 


/ 


t 


\ 


LECTURE    IX 


91 


LeSeV'ald  C  h!  '''rr  '"  '"f  ^"'^'^  ^^^^^^'  Customers' 
Ledger,  and  Creditors'  Ledger  after  the  above  journal  entries 
have  been  posted  is  as  follows : 

Illustration  No.  84 
General  Ledger  of  James  Smith 

^^^ XSmith,  Prop. 


$2,000 


Furniture  &  Fixtures 


$1,000 


Merchandise  Inventory 


$8,000 


Notes  Receivable 


$3,000 


A.  Duke 


$500 


Isoo 


O.  Bliss 


$600 


L.  Crane 


$600 


$700 


E.  Lee 


$700 


P 


$800  $800 


Customers'  Controlling  Ace. 


$14,100 


Notes  Payable 


$1,000 


J.  Moore 


$400 


D.  Brown 


$500 


L.  James 


$400 


$500 


$600  |6oo 


Creditors*  Cont.  Account 


$i,5oa 


$2,600 


92 


BOOKKEEPING,    THEORY    AND    PRACTICE 

Illustration  No.  8$ 
Customers'  Ledger  of  James  Smith 
A.  Duke 

$500 


O.   Bliss 


$6oo 


L.   Crane 


$700 


E.  Lee 


$8oo 


Illustration  No.  86 

Creditors'  Ledger  of  James  Smith 

J.  Moore 


$400 


D.   Brown 


$500 


L.  James 


$6oo 


LECTURE    IX 


93 


A  trial  balance  prepared  from  the  General  Ledger  at  this 
point  would  be  as  follows  : 

Illustration  No.  87 
General  Ledger  Trial  Balance 


Debits 

Credits 

Cash 

$2,000 

Furniture   &  Fixtures 

1,000 

Merchandise  Inventory 

8,000 

Notes  Receivable 

3,000 

Customers*    Controlling   A/c 

2,600 

Notes  Payable 

$1,000 

J.  Smith,  Proprietor 

14,100 

Creditors*   Controlling  Account 

1,500 

$16,600 

$16,600 

A  statement  of  accounts  open  in  the  Customers'  Ledger  at 
this  point  would  be  as  follows : 


Illustration  No.  88 
Schedule  of  Customers'  Balances 


A.  Duke 
O.  Bliss 
L.  Crane 
E.  Lee 


$500 
600 
700 
800 

$2,600 


A  statement  of  accounts  open  in  the  Creditors'  Ledger  at  this 
point  would  be  as  follows : 


Illustration  No.  8g 

Schedule  of  Creditors'  Balances 
J.  Moore 
D.  Brown 
L.  James 


$400 
500 
600 

$1,500 


\ 


Operation  of  the  customers'  controlling  account — It  will  be 
observed,  from  the  foregoing  illustrations,  that  the  Controlling 
Accounts  show  in  total  what  appears  in  detail  in  the  subsidiary 
Ledgers.     Thus  the  Customers'  Controlling    Account    in    the 


^ 


94  BOOKKEEPING.   THEORY   AND   PRACTICE 

Ss  toTlTe    fh!  .7"!  "''"'"'"■     ^•'^  '*'="'^  -hich  make  up 
U»s  total,  ,.e.,  the  details,  appear  in  the  Customers'  Ledger 

PofteSTt    m'T  .T"'*   ^"^^"""^^^   f-  ^<^d^   -Id    are 
posted  m  detail  to  the  debit  of  customers'  accounts  in  the  Cus- 

troX  'f'^'^'r^'  r  r'-  '°  ''"^  'J^"''  of  Custome*'  Con- 
custZrt'  T  *^  ^'""''  ^^^^'■•-     Similarly,  credits  to 

the  c«dt  „r'T'  ^°"'  '"'  '"'"'^^'^  '''  Po^t-d  i"  detail  to 
the  credit  of  customers'  accounts  in  the  Customers'  Ledger  and 

SeS  utr''  °^  ^~-'  ^--'""^  ^- ""  "'e 
Let  us  assume,  for  the  purpose  of  illustration,  that  the  Sales 
Journal  of  James  Smith  shows  the  following  transactions : 

Illustration  No.  go 

Sales  Journal  of  James  Smith  (Page  r) 

V  A.   Duke  -j,^ 

V  O.  Bliss  ^^ 

V  L-  Crane 

V  E.  Lee  ^ 

500 


10 


5    Customers'  Controlling  A/c 
To  Sales 


$1,100 


$1,100 


$1,100 


Jince  customers'  accounts  are  now  carried  in  a  subsidiary 
ledger  it  follows  that  A.  Duke,  O.  Bliss.  L.  Crane,  and  E  72 
must  be  debited  in  the  Customers'  Ledger  with  lio^,  $200  $3^' 
and  $soo,  respectively.  It  should  be  borne  in  mind,  ^t  tS^' 
point,  that  the  trial  balance  is  taken  from  the  General  Ledger 
only^  Thus  It  will  be  seen  that  a  double  entry  must  be  made 
in  the  General  Ledger.  The  double  entry  to  be  made  in  the 
General  Ledger,  expressed  in  account  form,  is  as  follows : 

Customers'  Controlling  Account 


$1,100 


Sales 


$1,100 


Since  the  Customers'  Controlling  Account  in  the  General 
Ledger  takes  the  place  of  the  individual  customers'  accounts, 
.t  follows  that  Customers'  Controlling  Account  must  be  debited 


LECTURE    IX 


95 


Let  us  also  assume  that  the  Cash  Journal  of  James  Smith 
shows  the  following  cash  receipts  : 

Illustration  No.  gi 
Cash  Journal  of  James  Smith 
^^__^ Cash  Receipts  (Page  2) 


Explana-      Cu. 
I>ate    Account  tion  L. 

A.  Duke  On  account     V 

Notes   Receivable 
Int.  on  Notes 

Receivable 
L.  Crane 
E.  Lee 

Dr.  Cash 

Dr.  Cash  Dis- 
count on  sales 

Cr.   Customers' 
Cont.  A/c 

Cr.   (posted  in 
detail) 


G. 
L. 


Net      Int.  Customers'  Gen. 
Cash   &Dis.    Ledger  Ledger 


II 


V 
V 


$300 
3,030 


686 

784 

$4,800 


$300 


$14 
16 


$3,000 


JO 


700 

800 


$30 


$1,800 


$3,030 


Note  that  items  checked  indicate  postings  made    in    the  Cus- 
tomers' Ledger. 

It  will  be  observed  that  a  special  or  individual  Customers' 
Ledger  column  is  used,  in  which  are  recorded  only  those 
amounts  to  be  carried  to  the  credit  of  accounts  in  the  Cus- 
tomers' Ledger.  With  the  use  of  this  additional  column  it  is 
possible  to  arrive  at  the  total  credits  made  in  the  Customers' 
Ledger  and  then  post  in  total  to  the  Customers'  Controlling 
Account  m  the  General  Ledger. 

Each  individual  item  in  the  Customers'  Ledger  column  is 
posted  to  the  credit  of  its  respective  account  in  the  Customers' 
Ledger.  In  practice  such  postings  are  made  daily.  It  should 
be  borne  m  mmd  at  this  point  that  the  trial  balance  is  taken 
from  the  General  Ledger  only.  A  double  entry,  therefore,  must 
be  made  m  the  General  Ledger  from  the  receipt  side  of  the  Cash 
Journal.  The  double  entry  to  be  made,  expressed  in  account 
form,  IS  as  follows : 


Cash 


$4,800 


Notes  Receivable 


$3,000 


96 


BOOKKEEPING,   THEORY   AND   PRACTICE 


Cash  Discount  on  Sales 


Interest  on  Notes  Receivable 


$30 


$30 


Customers'  Cont.  Ac. 


$1,800 


It  will  be  observed  that  postings  in  the  General  L,edger  are 
made  in  detail  from  the  General  Ledger  colirnm,  and  in  total 
from  the  other  three  colunms. 

The  status  of  the  accounts  in  the  General  Ledger  and  in  the 
Customers'  Ledger  after  the  foregoing  sales  and  cash  trans- 
actions have  been  recorded,  is  as  follows : 


Page  No.  I 


Illustration  No.  92 

General  Ledger  of  James  Smith 

After  posting  Sales  and  Cash  Receipts 

Cash 


Balance 
Total  Receipts 


Page  No.  2 


Balance 


Page  No.  3 


Balance 


Page  No.  4 


Balance 


Page  No.  5 


Balance 
Total  Sales 


$2,000 
C2       4,800 


Furniture  and  Fixtures 


1,000 


Merchandise  Inventory 


8,000 


Notes  Receivable 


3,000 


Cash 


Customers'  Controlling  Account 


2,600 
1,100 


Total  Cash 


C     $3,000 


1,800 


LECTURE    IX 


97 


Page  No.  6 


Total 


Page  No.  7 


Page  No.  8 


Page  No.  9 


Page  No.  10 


Page  No.  II 


Page  No.  I 


Balance 
Sales 

Page  No.  2 


Balance 
Sales 

Page  No.  3 


Balance 
Sales 


Cash  Discount  on  Sales 


30 


James  Smith,  Proprietor 


Balance 


Notes  Payable 


Balance 


Creditors'  Controlling  Account 


Balance 


Sales 


Totals 


Interest  on  Notes  Receivable 


Cash 


Illustration  No.  gs 
Customers'  Ledger  of  James  Smith 
A.  Duke 


$500 
100 


Cash 


O.  Bliss 


600 

S         200 


L.  Crane 


700 


Cash 


14,100 


1,000 


1,500 


S       1,100 


30 


C       $300 


700 


98 

Page  No.  4 


BOOKKEEPING,   THEORY  AND   PRACTICE 


E.  Lee 


Balance 
Sales 


800 
500 


Cash 


800 


A  trial  balance  taken  from  the  General  Ledger  at  this  point 
would  be  as  follows : 

Illustration  No.  ^4 

James  Smith 

General  Ledger  Trial  Balance 

Taken  after  Sales  and  Cash  Receipts  have  been  posted 


3 

5 
6 

7 
8 

9 
10 
II 


Cash 

Furniture  and  Fixtures 

Merchandise  Inventory 

Customers'  Controlling  Account 

Cash  Discount  on  Sales 

J.  Smith,  Proprietor 

Notes  Payable 

Creditors'  Controlling  Account 
Sales 

Interest  on  Notes  Receivable 


$6,800 

1,000 

8,000 

1,900 

30 


$14,100 

1,000 

1,500 

1,100 

30 


$17,730  $17,730 


A  statement  of  accounts  open  in  the  Customers'  Ledger  of 
James  Smith  would  be  as  follows : 

Illustration  No.  95 
James  Smith 
^ Schedule  of  Customers'  Balances 


1  A.  Duke 

2  O.  Bliss 

3  L.  Crane 

4  E.  Lee 


$300 
800 
300 
500 


$1,900 


Operations  of  the  creditors'  controlling  account— The  Credi 
tors'  Controlling  Account  is  operated  in  the  same  manner  as 
the  Customers   Controlling  Account;  i.e.,  credits  to  be  made  to 
creditors   accounts  for  goods  purchased  are  posted  in  detail  in 
the  Creditors   Ledger  and  in  total  to  the  Creditors'  Controlling 


I 


LECTURE    IX 


99 


Account  m  the  General  Ledger.  Similarly,  debits  to  creditors 
for  cash  paid  them  are  posted  in  detail  to  the  debit  of  creditors' 
accounts  in  the  Creditors'  Ledger  and  in  total  to  the  Creditors' 
Controlling  Account  in  the  General  Ledger. 

Let  us  assume,  for  the  purpose  of  illustration,  that  the  Pur- 
chase Journal  of  James  Smith  shows  the  following  transactions : 

Illustration  No.  g6 
Purchase  Journal  of  James  Smith  (Page  i) 


Date 


Name 


Cr. 
L.F. 


Station-  Insur- 
Amount    Purchases       ery         ance 


J.  Murphy 
D.  Dark 
L.  James 


V 

y 

V 


$10 

50 

800 


$10 


$800 


$50 


$860   $800  %{^      $55 


14 


15 


16 


Note  that  items  checked  indicate  postings  made  in  the  Cred- 
itors' Ledger. 

Since  the  creditors'  accounts  are  now  carried  in  the  Creditors' 
Ledger,  it  follows  that  the  items  in  the  amount  column  must  be 
posted  to  the  credit  of  their  respective  accounts  in  the  Creditors' 
Ledger;  and  since  the  trial  balance  is  taken  from  the  General 
Ledger  only,  it  follows  that  a  double  entry  must  be  made  in 
the  General  Ledger.  The  double  entry  to  be  made  in  the  Gen- 
eral Ledger,  expressed  in  account  form,  is  as  follows : 


Purchases 


Creditors'  Controlling  Acxrount 


$800 


Stationery 


$860 


$10 

Insurance 
$50 


100 


BOOKKEEPING,   THEORY  AND   PRACTICE' 


Let  us  also  assume  that  the  Cash  Journal  of  James  Smith 
shows  the  following  cash  payments : 

Illustration  No.  g/ 

Cash  Journal  of  James  Smith 
Payment  Side   (Page  3) 


Date    Account 


Explana-        Cr.     G.  Net    Int.  &  Creditors'   Gen. 

tion  L.     L.         Cash    Disc.    Ledger    Ledger 


L.  James 

J.  Moore 

Notes  Payable 

Int.  on  Notes  Payable 

D.  Clark 

Cr.  Cash 

Cr.  Cash  Dis.  on 

Purchases 
Dr.  Creditors*  Cont. 

Ac. 
Dr.   (posted  in 

detail) 


V 
V 


8 

12 


$588     $12 
392        8 
1,010 


$600 
400 


$1,000 
10 


49 

z 
$21 

50 

I 

3 

$2,039 

9 

$1,050 

$1,010 

Note  that  items  checked  (V)  indicate  postings  made  in  the 
Creditors'  Ledger. 

It  will  be  observed  that  a  special  or  individual  Creditors' 
Ledger  column  is  used  in  which  are  recorded  only  amounts  to 
be  posted  to  the  debit  of  accounts  in  the  Creditors'  Ledger. 
With  the  use  of  this  additional  column  it  is  possible  to  arrive 
at  the  total  of  the  debits  made  in  the  Creditors'  Ledger  and  to 
post  in  total  to  the  debit  of  the  Creditors'  Controlling  Account 
in  the  General  Ledger. 

Each  individual  item  in  the  Creditors'  Ledger  column  is 
posted  to  the  debit  of  its  respective  account  in  the  Creditors' 
Ledger.  In  practice  such  postings  are  made  daily.  It  should 
be  borne  in  mind  at  this  point  that  the  trial  balance  is  taken 
from  the  General  Ledger  only.  A  double  entry,  therefore,  must 
be  made  in  the  General  Ledger  from  the  payment  side  of  the 
Cash  Journal.  The  double  entry  to  be  made,  expressed  in  ac- 
count form,  is  as  follows : 


Notes   Payable 


Cash 


$1,000 


$2,039 


LECTURE    IX 


lOI 


Interest  on  Notes  Payable 


Cash  Discount  on  Purchases 


$10 


Creditors'  Controlling  Account 


$21 


$1,050 


It  will  be  observed  that  postings  in  the  General  Ledger  are 
made  in  detail  from  the  General  Ledger  column  and  in  total 
from  the  other  three  columns. 

In  order  to  illustrate  now  how  notes  received  from  customers 
and  notes  given  to  creditors  are  recorded  in  "The  Journal" 
when  controlling  accounts  are  kept,  let  us  assume  that  James 
Smith  receives  from  his  customer  O.  Bliss  a  60-day  note  in 
amount  $600,  and  gives  to  his  creditor,  D.  Brown,  his  60-day 
note  in  amount  $500.  Assuming  that  the  standard  two-column 
Journal  is  to  be  used,  the  entries  would  be  as  follows: 

Illustration  No.  g8 

James  Smith 
Journal  (Page  i) 


Date 

4  Notes  Receivable 

5  To   Customers'   Controlling  Ace. 

O.  Bliss  $600 

His  note  dated  due 

in  60  days. 
9    Creditors'  Controlling  Account 

D.  Brown  $500 
8       To  Notes  Payable 

Our  note  dated  due 

in  30  days. 


$600 


$600 


$500 


$500 


$1,100        $1,100 

Note  that  items  checked   (V)    indicate  postings  made  in  the 
Subsidiary  Ledgers. 

Since  the  trial  balance  is  taken  from  the  General  Ledger  only, 
it  follows  that  a  double  entry  must  be  made  in  that  Ledger 


i02 


BOOKKEEPING,   THEORY  AND   PRACTICE 


covering  the  receipt  of  the  note.    The  double  entry  to  be  made, 
expressed  in  account  form,  is  as  follows : 


Notes  Receivable 


Customers'  Cont.  Account 


$600 


$600 


And  since  O.  Bliss,  by  giving  us  his  note,  has  reduced  the 
amount  which  he  owes  us  on  open  account,  it  follows  that  his 
account  must  be  credited  in  the  Customers'  Ledger. 

Similarly  a  double  entry  must  be  made  in  the  General  Ledger 
covering  the  note  given.  The  double  entry  to  be  made,  ex- 
pressed in  accoimt  form,  is  as  follows : 


Creditors'  Controlling  Ace. 


Notes  Payable 


$500 


$500 


And,  since  we  have  reduced  the  amount  which  we  owe  D. 
Brown  on  open  account  by  giving  him  our  note,  it  follows  that 
his  account  must  be  debited  in  the  Creditors'  Ledger. 

It  will  be  seen  from  the  foregoing  journal  entries  that,  when- 
ever we  debit  or  credit  the  Customers*  Controlling  Account,  we 
must  debit  or  credit  some  accoimt  in  the  Customers'  Ledger 
and  vice  versa;  and  whenever  we  debit  or  credit  the  Creditors' 
Controlling  Account,  we  must  debit  or  credit  some  account  in 
the  Creditors'  Ledger.  Our  books  of  original  entry,  however, 
are  usually  arranged  so  as  to  enable  us  to  post  to  the  control- 
Hng  accounts  in  total.  Consequently,  whenever  the  Journal  is 
frequently  used  for  making  entries,  it  is  the  practice  to  provide 
a  special  six-column  journal  in  which  provision  is  made  for  a 
debit  and  credit  column  for  each  ledger;  viz.,  Customers',  Cred- 
itors', and  General  Ledger.  The  method  of  recording  trans- 
actions in  the  six-column  journal  will  be  illustrated  at  the  end 
of  this  chapter. 


i 


LECTURE    IX 


103 


The  status  of  the  accounts  in  the  General,  Customers',  and 
Creditors'  Ledgers  at  this  point  is  as  follows : 

Illustration  No.  gg 
General  Ledger  of  James  Smith 
After  posting  from  sales  book,  purchase  book,  cash  book,  and  journal 
Page  I  Cash 


Balance 
Total  Receipts 

$2,000 
C2       4,800 

Total  Payments 

$2,039 

Page  2 

Furniture  &  Fixtures 

Balance 

1,000 

Page  3 

Merchandis( 

J  Inventory 

Balance 

8,000 

Page  4 

Notes  Receivable 

Balance 
0.  Bliss 

3,000 
Ji         600 

Cash 

C2 

3,000 

Page  5 

Customers'  Controlling  Account 

Balance 
Total  Sales 

2,600 
1,100 

Total  Cash 
Notes  Rec. 

C2 
Ji 

1,800 
600 

Page  6 

Cash  Discount  on  Sales 

Total 

C2             30 

Page  7 

James  Smith,  Proprietor 

Balance 

14,100 

I04  BOOKKEEPING,   THEORY  AND   PRACTICE 


Page  8  Notes  Payable 


Cash 


Page  9 


C3       1,000 


Balance 
D.  Brown 


Creditors'  Controlling  Account 


Total  Payments 
Note  Pay. 

Page  10 


Page  II 


Page  12 


Cash 
Page  13 


Page  14 


Total 
Page  15 


Total 
Page  16 


Total 


Page  I 


Balance 
Sales 


C3       1,050 
Ji         500 


Balance 
Total 


Sales 


Total 


Interest  on  Notes  Receivable 


Cash 


Interest  on  Notes  Payable 


C3 


10 


Cash  Discount  on  Purchases 


Total 
Purchases 


P.Ji         800 


Stationery 


PJi 


to 


Insurance 


P.Ji 


■SO 


Illustration  No.  joo 

Customers*  Ledger  of  James  Smith 

A.  Duke 


Si 


$500 
100 


Cash 


Ji 

0 


C2 


C3 


1,000 
500 


1,500 
PJi         860 


Si       1,100 


30 


21 


€2       $300 


f 


i^ 


Cash 


Page  4 


Page  5 


Cash 


LECTURE    IX 

105 

Page  2 

0.  Bliss 

Balance 
Sales 

Si 

600 
200 

Note  Received 

Ji 

600 

Page  3 

L.  Crane 

Balance 
Sales 

Si 

700 
300 

Cash 

C2 

700 

Page  4 

E.  Lee 

Balance 
Sales 

Si 

800 
500 

Cash 

C?. 

800 

Illustration  No.  loi 

Creditors'  Ledger  of  James  Smith 

Page  I 

J.  Moore 

Cash 

C3 

$400 

Bal.  transferred 

Ji 

$400 

Page  2 

D.  Brown 

Note  Pay. 

Jl 

500 

Bal.  transferred 

Ji 

500 

Page  3 

L.  James 

C3       600 


Bal.  transferred 
Purchases 


J.  Murphy 


Jl 
Jl 


Stationery 


PJl 


D.  Clark 


C3 


SO 


Insurance 


P.Ji 


600 
800 


10 


50 


T 


I    i 


f 


io6 


BOOKKEEPING,   THEORY  AND   PRACTICE 


f 


A  statement  of  accounts  open  in  the  Customers'  Ledger  of 
James  Smith  at  this  point  would  be  as  follows : 

Illustration  No.  102 
James  Smith 
Schedule  of  Customers'  Balances 
A.  Duke 
O.  Bliss 
L.  Crane 
E.  Lee 


I 
2 

3 
4 


$300 
200 
300 
500 


$1,300 


A  statement  of  accounts  open  in  the  Creditors'  Ledger  of 
James  Smith  at  this  point  would  be  as  follows : 

Illustration  No.  103 
James    Smith 

Schedule  of  Creditors'  Balances 

3  L.  James  $gQo 

4  J.  Murphy  jq 

$810 

A  trial  balance  taken  from  the  General  Ledger  of  James  Smith 
at  this  point  would  be  as  follows  : 

Illustration  No.  104 

James     Smith 

General  Ledger  Trial  Balance 

After  posting  Sales,  Purchases,  Cash  and  Journal  Entries 


3 
4 
5 
6 

7 
8 

9 

ID 

ir 
12 
13 
14 
IS 
16 


Cash 

Furniture  &  Fixtures 

Merchandise   Inventory 

Notes  Receivable 

Customers'  Controlling  Account 

Cash  Discount  on  Sales 

James  Smith,  Proprietor 

Notes  Payable 

Creditors'  Controlling  Account 

Sales 

Interest  on  Notes  Receivable 

Interest  on  Notes  Payable 

Cash  Discount  on  Purchases 

Purchases 

Stationery 

Insurance 


$4,761 

1,000 

8,000 

600 

1,300 

30 

$14,100 

500 

810 

1,100 

30 

10 

21 

800 

10 

SO 

$i6,56r 

$i6,s6i 

D 


\ 


LECTURE    IX 


107 


The  ease  with  which  controlling  accounts  are  operated  in 
practice. — ^When  controlling  accounts  are  used,  it  is  the  practice 
to  post  all  items  recorded  in  the  Sales  Journal  to  the  debit  of 
accounts  in  the  Customers'  Ledger,  and  to  post  all  items  recorded 
in  the  Purchase  Journal  to  the  credit  of  accounts  in  the  Cred- 
itors' Ledger.  For  example,  if  we  buy  from,  and  sell  to,  let  us 
say,  L  Scott,  we  should  have  an  account  for  him  in  the  Cus- 
tomers' Ledger  and  an  account  in  the  Creditors*  Ledger.  We 
should  not,  for  example,  keep  only  one  account,  let  us  say,  in 
the  Creditors'  Ledger,  and  debit  that  account  from  the  Sales 
Journal  when  we  sell  merchandise  to  him. 

Thus,  it  will  be  seen  that,  by  this  system,  the  total  of  the 
Sales  Journal  represents  the  amount  to  be  posted  to  the  debit 
of  Customers'  Controlling  Account  in  the  General  Ledger,  since 
each  item  in  the  Sales  Journal  was  posted  to  the  debit  of  some 
account  in  the  Customers'  Ledger.  Similarly  the  total  of  the 
amount  column,  in  the  Purchase  Journal,  represents  the  amount 
to  be  posted  to  the  credit  of  Creditors'  Controlling  Account  in 
the  General  Ledger.  It  is  the  practice  among  the  larger  con- 
cerns, when  they  buy  from  and  sell  to  any  one  concern,  to  make 
payment  for  goods  purchased,  and  to  receive  payment  for  goods 
sold,  instead  of  deducting  the  amount  of  goods  sold  from  the 
remittance  covering  goods  purchased. 

Sometimes  a  concern  has  occasion  to  receive  cash  from  a 
creditor  and  to  pay  cash  to  a  customer.  Such  is  the  case  when 
goods  purchased  or  sold  have  been  paid  for  and  subsequently 
returned.  For  example,  if  we  purchase  $1000  worth  of  mer- 
chandise from  John  Doe,  pay  him,  and  subsequently  have  occa- 
sion to  return  part  or  all  of  the  merchandise  because  of  some 
defect,  we  should  have  occasion  to  receive  a  check  from  a  cred- 
itor. If  such  transactions  were  niunerous,  as  is  the  case  when 
goods  are  shipped  in  containers  for  which  payment  is  made 
and  credit  received  when  returned,  a  special  or  individual  "Cred- 
itor's Ledger"  column  is  used  on  the  receipt  side  of  the  Cash 
Journal.  Similarly  a  special  or  individual  "Customers'  Ledger" 
column  is  used  on  the  payment  side  of  the  Cash  Journal  when 
payments  to  customers  are  frequent. 

We  have  already  explained  the  advantage  of  a  six-column 
journal.  We  shall  now  illustrate  the  manner  in  which  trans- 
actions are  recorded  in  this  journal. 

The  six-column  journal. — Let  us  assume,  for  the  purpose  of 
illustrating  the  manner  in  which  transactions  are  recorded  in 


I 


loS 


BOOKKEEPING,   THEORY  AND   PRACTICE 


» 


the  Six-Column  Journal,  that  the  customers'  and  creditors' 
accounts  in  the  General  Ledger  of  James  Smith  at  the  beginning 
of  the  period  (see  Illustration  No.  99),  are  to  be  transferred 
to  the  Customers'  and  Creditors'  Ledgers  respectively  and  that 
controlling  accounts  are  to  be  established  in  the  General  Ledger 
in  their  stead. 

Let  us  also  assume  that  the  note  received  from  O.  Bliss,  in 
amount  $6cx),  and  the  note  given  to  D.  Brown,  in  amount  $500 
(see  Illustration  No.  98),  are  to  be  recorded  in  the  Six-Column 
Journal.  The  entries  to  be  made  in  the  Six-Column  Journal 
would  be  as  follows: 


fi 


I 


LECTURE    IX 

109 

Illustration  No.  105 

James  Smith 

Journal 

Acc'ts 

Acc'ts      Gen. 

V                              V 

Gen. 

Acc'ts     Acc'ts 

Payable 

Rec'v'ble  Ledger 

Ledger 

R'c'v'ble  Pay'ble 

$500 

V  A.  Duke 

• 

600 

V  0.  Bliss 

700 

V  L.   Crane 

800 

V  E.  Lee 

To  A.  Duke         17 
"  0.  Bliss          18 
"   L.  Crane         19 
"  E.  Lee            20 
To    transfer   the 
customers*    ac- 
counts   to    the 
Customers* 
Ledger. 

$500 
600 
700 
800 

$400 

21  J.  Moore 

500 

22  D.  Brown 

600 

23  L.  James 

To  J.  Moore     V 
"    D.  Brown     V 
"    L.  James     V 
To    transfer    the 
creditors*      ac- 
counts   to     the 
Creditors* 
Ledger. 
Creditors' 

Cont.  Ac.              9 
5  Customers* 
Cont.  Ac. 

$1,500 

$400 
500 
600 

$1,500 

$2,600    $2,600 

$4,100 

$4,100 

6qo 

4  Notes  Receivable    ~ 
To  0.  BHss         V 
His  60-day  note 

$600 

$500 

500 

V  D.  Brown 
To  Notes  Pay- 
able                      8 
Our  30-day  note 

9  Creditors' 

500 

d»- 

$500 

Cont.  Ac. 

Customers' 
Cont.  Ac.              5 

600 
$1,100 

$600 

$1,100 

I 


I 


1^ 


no 


BOOKKEEPING,   THEORY  AND   PRACTICE 


Note  that  items   checked  indicate  postings  made  in  the  Sub- 
sidiary Ledgers. 

The  three  columns  to  the  left  of  the  explanation  space  are 
debit  columns;  the  columns  to  the  right  are  credit  columns. 

The  first  journal  entry  effects  the  closing  of  the  customers' 
accounts  in  the  General  Ledger  and  the  opening  of  these  ac- 
counts in  the  Customers'  or  Accounts  Receivable  Ledger.  For 
example,  A.  Duke's  account  is  to  be  closed  in  the  General  Ledger 
and  opened  in  the  Customers'  Ledger.  A.  Duke's  account  must 
therefore  be  debited  in  the  Accounts  Receivable  or  Customers' 
Ledger,  and  credited  in  the  General  Ledger.  The  Customers' 
Controlling  Account  is  established  in  the  General  Ledger  by 
footing  the  Accounts  Receivable  column  and  extending  the  total 
in  the  General  Ledger  column  for  posting  to  the  controlling 
account.  In  a  similar  manner,  the  second  entry  effects  the  clos- 
ing of  the  creditors'  accounts  in  the  General  Ledger,  and  the 
opening  of  these  accounts  in  the  Accounts  Payable  or  Creditors' 
Ledger.  The  Creditors'  Controlling  Account  in  the  General 
Ledger  is  established  by  footing  the  Accounts  Payable  column 
and  extending  the  total  in  the  General  Ledger  column  for  post- 
ing to  the  controlling  account.  It  will  be  observed  that  a  double 
entry  has  been  made  in  the  General  Ledger,  i.e.,  in  the  ledger 
from  which  the  trial  balance  is  taken. 

The  third  entry  reads  as  follows:  Debit  "Notes  Receivable" 
in  the  General  Ledger  $600;  credit  O.  Bliss  in  the  Accounts 
Receivable  or  Customers'  Ledger  $600. 

The  fourth  entry  reads  as  follows:  Debit  D.  Brown  in  the 
Accounts  Payable  or  Creditors'  Ledger  $500;  credit  Notes  Pay- 
able in  the  General  Ledger  $5Cxd.  It  will  be  observed  from  this 
illustration  that  totals  of  the  Account  Receivable  and  Account 
Payable  columns  are  carried  in  the  General  Ledger  column  for 
posting  to  the  controlling  account. 

In  spite  of  the  fact  that  the  Six-Column  Journal  is  extremely 
practical,  and  is  commonly  used  in  business,  in  the  practice  set 
we  shall  use  the  two-column  standard  Journal  because  we  wish 
to  impress  upon  the  student  the  fact  that,  whenever  a  debit  or 
a  credit  to  a  customer's  or  creditor's  account  in  the  Subsidiary 
Ledger  is  made,  a  corresponding  debit  or  credit  must  be  made 
to  the  respective  controlling  account  in  the  General  Ledger  and 
vice  versa. 

Advantages  of  controlling  accounts. — The  chief  advantages 
of  controlling  accounts  are  as  follows: 


,r   ' 


LECTURE    IX 


III 


records  ^^^^  ""^^^  ^""'"'^^^  *^^  '^'^'''''''  ""^  ^^^""^  '"^  ^^^^^"^  ^^^ 
(2)     They  make  possible  the  localization  of  errors  in  posting 

to  accounts  in  the  ledgers  and  thus  obviate  the  necessity  of 

checkmg  back  all  postings  in  the  event  of  an  error. 

officei  ^^^^  ^'^^^^^sh  a  coptrol  of  the  work  by  the  accounting 
(4)     They  make  possible  the  preparation  of  financial  state- 

TnTtl^'/?  ^""^'  '^"''  ^^^  ^^^^^  ^"^^""t  due  from  customers 
and  the  total  amount  due  to  creditors  can  be  had  from  the  con- 
trol hng  accounts  without  first  listing  the  individual  customer's 
and  creditor's  balances. 


QUESTIONS 


I. 


2. 


(a)  What  is  meant  by  controlling  accounts^ 

(b)  Give  two  illustrations  of  the  use  of  such  accounts. 

(c)  State  the  advantages  of  such  an  account. 
Describe  the  procedure  you  would  follow  in  establishing 

a  customers'  controlling  account. 

3.  What  provisions,  if  any,  should  be  made  in  books  of 
original  entry  in  order  to  establish  and  operate  a  customers' 
and  creditors'  controlling  account  ? 


LECTURE    X 


"3 


LECTURE  X 

a 

CHECKS 

Introductory.-We  are  already  familiar  with  the  manner   in 
which  checks  received  and  checks  given  are  recordedTthe 

^viL  chT""'  -^'r  "'''  •'°"^^*^'  --«  transactions  in! 
ir^  ?  u"T^^  '""^  '^^'^'  ^^^"  ^hich  require  ex- 
planation and  which  will  be  discussed  at  this  point. 

Checte  returned  to  us  by  our  creditors—If,  i„  payine  an 
mvo.ce  by  check,  we  were  to  deduct  cash  dis  ount  Xr  th^ 
exp.rat.on  of  the  discount  period,  the  creditor,  in  aH  Iba! 
w  Sold  "*"™  *f  ^^^'^  *°  "^  -*  the  r;quest  th^t 

rfull     E'"?"'"  *'*  '""""  '^  *^"^  "^*  ^«<1  *en  remit 
m  full.    Checks,  however,  may  be  returned  for  other  reasons 

The  treatment  of  checks   returned   to  us  by  our  cred  tors 

SfllrT  "''*"  "'  "°*  *^  ^•'^^'^^  •>--  bL  recorded    n 
the  books  of  account. 

If  the  check  has  not  been  recorded  in  the  books  of  account 

ceS"  o^  ""';"'''  -'^^ -t"™«^d,  by  writing  the  Id  ■  W 

if  the  .h'f  K  "T"  *'  ^'"'^  °^  "'^  *«*  and  check  stub. 
If  the  check  has  been  entered  in  the  cash  book  and  posted 

r^L  ,^^  .  f""'^  '■'*"™^*'  '"'8^*'*  •'^  held  until  the  invoice 
or  the  account  from  which  the  deduction  was  made,  was  due 
net,  at  which  time  an  additional  check  would  be  dra^n  for  the 

Tcrlolld  L't^r  "f  '''  ^~*    °^   this  TdduUa 

when  r  i  J    ,  '^  .  '"  ""'  ""°""'  °"8^"«"y  -^--^dited 

when  the  deduction  was  made;  or  (2)  it  might  be  treated  as 

a  check  received  i.e.,  recorded  on  the  receipt  side  of  the  ''Cash 

Book,     endorsed,  and  deposited  in  the  bank,  and  credited    o 

the  account  originally  debited  when  the  check  was  S^ 

in  ttrtir  "  '^'^  "f'"-"  ^  ^"^^'^  ^^'  *°  ^  creditor^  lost 

"stopoe?'  td     t'T  '"•  P"^'"*  °"  '^'    ^heck    should    be 
stopped    and  a  duplicate  or  new  check  issued.     Payment  on 

the  check  IS  stopped  by  instructing  the  bank  not  to^ay  the 

check  when  presented.    Such  instructions  are  given  in  writing 
n  which  the  date,  the  number,  the  amount,  aid  the  pay    Tf 

the  check  are  given.    A  duplicate  check  is  one  which  bea«  t^e 


112 


same  date  and  number  as  the  original  check,  and  is  marked 
Duplicate."  The  check  stub  is  not  filled  in  if  a  duplicate  check 
IS  issued.  No  entry  is  made  on  the  books  of  account  when  a 
duplicate  check  is  issued,  because  the  necessary  entry  was  made 
when  the  original  check  was  drawn. 

Two  entries  must  be  made  when  a  new  check  is  issued.  A 
new  check  is  one  which  bears  a  current  number  and  the  date 
of  issue.  The  check  stub  is  filled  in  whenever  a  new  check  is 
issued.  An  entry  must  be  made  on  the  receipt  side  of  cash 
cancelling  the  entry  made  when  the  lost  check  was  issued;  and 
an  entry  must  be  made  on  the  payment  side  of  cash  covering 
the  new  check  issued. 

Checks  dated  ahead.— A  check  is  "dated  ahead,"  so  far  as 
the  payee  is  concerned,  when  it  bears  a  date  subsequent  to  that 
on  which  it  is  received. 

We  have  learned  from  our  definitions  that  a  check  is  payable 
on  demand,  (but  it  is  not  payable  on  demand  if  it  is  presented 
for  payment  on  a  date  prior  to  date  on  the  check).    Therefore 
a  check  dated  ahead  should  properly    not    be    considered    as' 
having  an  actual  value  until  the  date  on  the  check  is  reached 
and  should  not  be  recorded  on  the  books  or  deposited  in  the 
bank  until  that  date.    Such  checks  are  usually  held  in  the  safe 
until  the  dates  of  the  checks  and  are  then  recorded  on  the  books. 
Checks  deposited  with  the  bank  and  returned  unpaid.— Since 
a  check  IS  payable  on  demand,  it  follows  that  payment  must 
be  made  when  the  check  is  presented.    If  the  check  is  not  paid 
when  presentation  is  made,  the  check  is  said  to  be  dishonored 
Banks,  in  making  collections,  as  a  rule  protest  for  legal  reasons 
dishonored  checks.     Protest  is  an  affidavit  to  the  effect  that 
proper  presentation  was  made  and  that  payment  could  not  be 
had.  ^ 

When  a  check  of  a  customer,  deposited  by  us  with  the  bank 
IS  dishonored,  the  bank  will  charge  our  account  with  the  amount 
of  the  check  together  with  the  protest  fees,  and  will  return  the 
dishonored  check  to  us.  Therefore,  we  must  record  in  our 
check  book  as  a  withdrawal  the  amount  charged  to  us  by  the 
bank;  and  make  an  entry  on  the  payment  side  of  cash,  debiting 
the  account  of  the  customer  from  whom  the  check  was  received 
and  crediting  cash.  ' 

Certified  checks—Duties,  and  sometimes  taxes,  notes,  and 


I 


114  BOOKKEEPING.   THEORY  AND   PRACTICE 

drafts,  must  be  paid  by  certified  checks;  i.e.,  by  checks  the 
payment  of  which  is  assured  by  the  bank.  A  certified  check 
.s  one  which  bears  the  certification  of  a  bank  in  the  form  of 
the  word  certified"  written  or  stamped  across  the  face  of  the 
Check  and  signed  by  a  person  authorized  to  certify  checks  at 
that  bank.  The  bank  then  becomes  personally  liable  for  the 
check  which  It  has  certified.  Therefore,  the  holder  of  a  certified 
check  ,s  assured  of  its  payment  unless  the  bank  itself  should 
become  bankrupt. 

When  a  bank  certifies  a  check,  it  immediately  charges  the 
depositor  s  account,  and  treats  the  check  in  so  far  as  the  de- 
positor IS  concerned  as  having  been  paid.  Therefore,  if  a  check 
of  ours  IS  certified,  let  us  say  toward  the  latter  part  of  the 
month,  and  is  not  paid  by  the  bank  until  the  following  month 
the  amount  of  the  check  will  appear  as  a  charge  against  oui^ 
account  on  the  statement  issued  by  the  bank  when  our  pass 
book  ,s  balanced,  but  will  not  be  supported  by  the  cancelled 
Check. 

Checks  cashed—Unless  it  is  against  the  policy  of  the  busi- 
ness  to  cash  checks,  it  frequently  happens  that  an  employee 
or  the  proprietor,  or  an  officer  in  the  case  of  a  corporation,  has 
his  personal  checks  cashed  by  the  business.  In  cashing  checks 
the  business  receives  a  check  in  exchange  for  the  currency  which 
It  pays  out  of  petty  cash.  Such  a  transaction  results  in  a  de- 
crease in  cash  in  the  till,  and,  after  the  check  is  deposited,  an 
equal  increase  m  cash  in  the  bank. 

The  method  of  recording  such    transactions    depends    upon 

If  separate  accounts  are  kept  in  the  ledger  for  "Cash"  and 
for  Petty  Cash,"  it  follows  that  the  increase  in  cash  must  be 
recorded  in  the  "Cash  Account"  and  that  the  decrease  in  petty 
cash  must  be  recorded  in  the  "Petty  Cash  Account."  In  this 
case,  an  entry  is  made  on  the  payment  side  of  the  "Petty  Cash 
Journal,"  debiting  an  account  usually  styled  "Checks  Cashed" 
and  crediting  "Petty  Cash  Account";  and  when  the  check  is 
deposited,  an  entry  is  made  on  the  receipt  side  of  the  "Cash 
Joumal^^  debiting  "Cash  Account"  and  crediting  "Checks 
Cashed.  The  amount  of  the  check  is  also  recorded  on  the 
deposit  side  of  the  check  book. 

On  the  other  hand,  if  the  petty  cash  is  treated  as  part  of  the 
general  cash;  i.e.,  if  the  "Cash  Account"  in  the  ledger  includes 


LECTURE    X 


115 


both  petty  cash  and  cash  in  bank,  it  follows  that,  when  a  check 
is  cashed,  the  balance  of  the  "Cash  Account"  remains  unchanged, 
since,  in  cashing  a  check,  we  merely  increase  the  amount  of  cash 
on  deposit  with  the  bank  and  decrease  the  amount  of  cash  on 
hand.  In  this  case,  an  entry  is  made  on  the  payment  side  of 
the  "Petty  Cash  Journal";  and  the  check,  when  deposited  in 
the  bank,  is  recorded  on  the  deposit  side  of  the  check  book. 
No  postings  are  made  from  the  "Petty  Cash  Journal,"  because, 
if  no  separate  account  is  kept  on  the  ledger  for  "Petty  Cash," 
this  journal  is  used  merely  as  a  memorandum  book. 

Giving  a  check  in  exchange  for  currency.— Occasionally  the 
business  is  called  upon,  usually  by  an  employee,  to  issue  its 
check  in  exchange  for  currency.  As  in  the  case  of  checks 
cashed,  no  entry  is  made  on  the  books  of  account  if  no  separate 
account  is  kept  in  the  ledger  for  "Petty  Cash." 

There  are  two  methods  of  recording  such  transactions,  de- 
pending upon  whether  the  currency  received  is  deposited  in  the 
bank  or  withheld  as  petty  cash: 

Method  I.  If  the  currency  received  is  deposited  in  the  bank, 
no  records  other  than  those  on  the  check  book  covering  the 
deposit  and  the  check  drawn  are  made. 

Method  2.  If  the  currency  received  is  treated  as  petty  cash, 
an  entry  is  made  on  the  receipt  side  of  petty  cash. 

There  are  also  two  methods  of  recording  such  transactions 
if  a  separate  account  is  kept  in  the  ledger  for  "Petty  Cash" : 

Method  I.  If  the  currency  received  is  deposited  in  the  bank 
(as  is  usually  the  case  when  a  separate  account  is  kept  in  the 
ledger  for  "Petty  Cash"),  an  entry  may  or  may  not  be  made  in 
the  books  of  account.  If  the  currency  received  is  deposited  in 
the  bank,  no  account  is  affected,  since  the  amount  deposited 
offsets  the  amount  withdrawn.  If,  however,  it  is  desired  to 
record  in  the  books  of  account  the  amount  of  cash  received 
and  the  amount  of  the  check  drawn,  an  entry  must  be  made 
on  the  receipt  side  of  the  "Cash  Journal"  debiting  "Cash  Ac- 
count" and  crediting  "Checks  Cashed,"  and  an  entry  must  be 
made  on  the  payment  side  of  the  "Cash  Journal"  debiting  "Checks 
Cashed"  and  crediting  "Cash  Account." 

Method  2.  If  the  currency  received  is  withheld  as  petty  cash, 
an  entry  must  be  made  on  the  receipt  side  of  the  "Petty  Cash 
Journal";  and,  in  the  ledger,  "Petty  Cash  Account"  is  debited 
and  "Checks  Cashed  Account"  is    credited.     An    entry    must 


I 


116  BOOKKEEPING,   THEORY  AND   PRACTICE 

also_be  made  on  the  payment  side  of  the  "Cash  Journal";  and 
.n  the  edger,  ''Checks  Cashed  Account"  is  debited  and  "cTsh 
Account    IS  credued.    Method  i  is  the  better  of  the  two  methods. 

COMMERCIAL    DRAFTS 

Introductory—Commercial  drafts  include  negotiable    instru- 
ments known  as  drafts,  bills  of  exchange,  and  trade  acceptances. 
Commercial  draft  defined.-A  commercial  draft  is  ''an  un- 

cTI  Tk  t  '"  "^"''"^  ^^^'^^^^"^  ^y  °"^  P*-"^""  to  another, 
signed  by  the  person  giving  it   (called  the  drawer)   requiring 

the  person  to  whom  it  is  addressed  (called  the  drawee)  to  pay 
on  demand  or  at  a  fixed  or  determinable  future  time  a  sum 
certam  m  money  to  the  order  of  a  designated  person  (called 
the  payee)  or  to  bearer."    (HuflFcut.) 

Use  of  the  draft-commercial  drafts  are  used  primarily  to 
effect  the  settlement  of  debts  without  the  risk  or  inconvenience 
ot  remittmg  money. 

They  are  used  when  merchandise  is  shipped  C.O.D  by 
freight;  for  the  i^yment  of  creditors  through  customers;'  for 
collection  of  past  due  accounts;  and.  in  the  past  few  years,  they 
have  been  used  extensively  as  a  result  of  the  fact  that  their 
acceptance  by  customers,  has  been  made  a  part  of  the  terms 
of  sale  to  the  customers. 

Classification  of  drafts-Drafts  may   be   divided,   according 

t.me  drafts        ^^^^''  '"***  ^^°  ''^''*''  "''''  ''^^'  '^'^^''  ^"^ 

Sight  drafts  are  payable  on  presentation. 

T,me  drafts  are  of  two  kinds;  namely,  those  payable  at  a 
certam  time  after  date  of  draft,  and  those  payable  at  a  certain 
time  after  sight;  i.e..  a  certain  time  after  presentation  for  accept- 
ance has  been  made.  ^ 

Treatment  of  sight  drafts  in  the  books  of  accotmt-(a)  Otir 
sight  drafts  on  debtors-When  we  draw  on  a  debtor  at  sight 
through  our  bank  for  collection,  no  entry  covering  the  draft 
is  made  m  the  books  of  account  at  the  time  the  draft  is  left  with 
Ae  bank  for  collection,  as  the  draft  has  no  value  until  it  has 
been  accepted.  Since  a  sight  draft  is  payable  when  presented, 
.t  follows  that  the  only  way  the  debtor  can  accept  the  draft  is 
by  paying  it. 

If  the  draft  is  paid,  the  bank  will  credit  our  account.    An 

ttn  k!      ^  "'^'^"  °"  °"''  ^^'  ''"•'''■»?  "^h  and  crediting 
the  debtor  (i.e..  customer).  * 


LECTURE   X 


"7 


I 


ii8 


! 


BOOKKEEPING,   THEORY  AND   PRACTICE 


If  the  draft  is  not  paid,  the  bank  will  return  the  draft  to  us 
with  a  notation  as  to  the  reason  for  non-payment. 

Let  us  assume  for  the  purpose  of  illustration  that  J.  Link 
owes  for  our  invoice  of  Feb.  26,  19—,  the  sum  of  $437.50,  and 
that  we  decide  to  draw  on  him  at  sight  through  the  Wall  Street 
Trust  Co.  for  collection  for  the  above  amount.  In  this  case  we 
should  draw  the  draft  shown  in  Illustration  No.  106. 

(b)  Creditors'  sight  drafts  on  us.— If  a  creditor  draws  on 
us  at  sight,  we  may  either  accept  or  refuse  the  acceptance  of 
the  draft.  The  only  way  we  can  accept  a  sight  draft  is  by 
paying  it.  If  we  pay  the  draft,  an  entry  is  made  on  our  books 
debiting  the  creditor's  account  and  crediting  cash. 

Treatment  of  time  drafts  in  the  books  of  account — (a)  Our 
time  draft  on  a  debtor.— For  the  purpose  of  illustration,  let  us 
assume  that  on  April  12,  19—,  we  ship  to  T.  Wilson  &  Co., 
merchandise  in  amount  $500,  on  terms  of  2%  subject  to  accept- 
ance of  draft,  payable  10  days  after  date.  In  this  case  we  should 
draw  the  draft  shown  in  Illustration  No.  107. 

The  draft  is  attached  to  the  invoice  and  mailed  to  T.  Wilson 
&  Co.  No  entry  covering  the  draft  is  made  at  the  time  the  draft 
is  mailed,  as  the  draft  has  no  value  until  accepted. 

Let  us  assume  that  T.  Wilson  &  Co.  accept  the  draft  and 
return  it  to  us.  The  draft  is  accepted  by  the  drawee  by  writing 
across  the  face  of  the  draft,  as  in  Illustration  No.  108,  the  words: 


Accepted 
April  13,  19— 


Payable  at 


T.  Wilson  &  Co. 


An  accepted  draft  is  known  as  "an  acceptance.*'  Acceptances 
have  the  status  of  promissory  notes.  Therefore,  when  we  re- 
ceive the  accepted  draft  from  T.  Wilson  &  Co.,  the  treatment 
on  the  books  of  account  is  the  same  as  if  we  had  received  their 
promissory  note. 

The  entry  to  be  made  on  our  books  on  receipt  of  the  accepted 
draft  from  T.  Wilson  &  Co.,  expressed  in  account  form,  is  as 
follows : 


LECTURE   X 


119 


Notes  Receivable 


(0    $490 


Int.  &  Die.  Expense 


(t)     $ro 


T.  Wilson  &  Co. 


Bal. 


$500 


$500    (i) 


Note  that  the  numbers  indicate  the  double  entry  made 

Subsequent  treatment  of  the  acceptance  is  exactly  the  same 
as  a  promissory  note;  i.e.,  we  should  leave  the  acceptance  with 
the  bank  for  collection  or,  if  so  desired,  should  discount  it  at 
the  bank. 

(b)  Time  draft  on  us  by  a  creditor.-For  the  purpose  of 
Jlustrafon  let  us  assume  that,  on  April  2,  we  purchase  from 
Eclipse  Mills  merchandise  in  amount  $2,400,  on  terms  of  2% 
subject  to  draft  payable  10  days  after  sight,  and  that  the  draft 
^accepted  by  us  on  April  4  and  made  payable  by  us  at  the 
Wall  St.  Trust  Co.     See  Illustration  No.  109. 

This  draft  would  be  mailed  to  us  by  the  Eclipse  Mills.  On 
receipt  of  the  draft,  we  should  write  our  acceptance  across  the 
face  of  the  draft  and  return  it  to  them.    See  Illustration  No.  no 

Since  this  is  a  draft  payable  after  sight,  it  is  due  10  days 
after  sight ;  i.e.,  after  the  date  of  acceptance. 

Since  an  acceptance  has  the  status  of  a  promissory  note,  it 
follows  that  the  entry  to  be  made  on  our  books  of  accomit  is 
the  same  as  if  we  had  given  Eclipse  Mills  our  note  dated  April 
4.  19-,  due  in  10  days.  The  entry  to  be  made,  expressed  in 
account  form,  is  as  follows : 


Int.  &  Dis.  Earned 


Notes   Payable 


$48     (i) 


$2,352     (1) 


Eclipse  Mills 


(i)    $2,400 


Balance      $2,400 


Note  that  the  numbers  in  parentheses  indicate  the  double 
made. 


entry 


I20 


BOOKKEEPING,   THEORY   AND    PRACTICE 


■hbB'- 


*     LECTURE    X 


121 


122  BOOKKEEPING,   THEORY   AND   PRACTICE 


LECTURE    X 


123 


8^ 


^NUN3S3«d  adoiag  ijo  smi  mv3i  isaioad  on 


3 


|i! 


9NUN3S3tW  31IOJ38  JJO  SIHl  MV3i.lS310dd  ON 


I 


124  BOOKKEEPING,   THEORY  AND   PRACTICE 

In  generaL-(a)  Sight  draft  with  bill  of  lading  attached.- 
An  expedient  for  shipping  goods  C.O.D.  via  freight  is  to  draw 
on  the  customer  at  sight,  and  attach  to  the  draft  the  bill  of 
lading  covering  the  shipment. 

The  procedure  in  this  case  is  as  follows:  the  packages  or 
cases  are  consigned  to  "our  order";  and  the  bill  of  lading  is 
made  out  to  "our  order"  as  consignee.  Thus  we  retain  title  to 
the  goods.  We  then  endorse  the  bill  of  lading  in  blank,  and 
attach  It  to  a  draft  reading  as  follows :  "At  sight— B/L  at- 
tached.   Pay  to .. 

We  then  leave  the  draft  with  our  bank  for  collection  No 
entry  is  made  covering  the  draft  when  it  is  left  with  the  bank 
tor  collection. 

If  the  draft  is  paid,  the  customer  receives  the  B/L  which 
enables  him  to  receive  the  goods.  If  the  draft  is  not  paid  it 
.s  returned  to  us  with  the  B/h  attached,  and  we  then  have  Ihe 
goods  shipped  back  to  us. 

No  entry  covering  the  draft  is  made  on  our  books  until  notice 
IS  received  from  the  bank  that  the  draft  has  been  paid  An 
entry  is  then  made  on  our  books  of  account  debiting  cash  and 
crediting  the  customer's  or  C.O.D.  account,  depending  upon 
which  account  was  originaUy  charged  when  the  goods  were 
snipped. 

.K^**^  /'f^  acceptances.-A  "trade  acceptance"  is  defined  by 
the  Federal  Reserve  Board  in  Regulation  A.  Series  of  1917,  ^ 
a  draft  or  bill  of  exchange  drawn  by  the  seller  on  the  pur- 
chaser of  goods  sold  and  accepted  by  such  purchaser;  and  a 
bill  of  exchange,  within  the  meaning  of  this  regulation,  is  de- 
faned  as  an  unconditional  order  in  writing,  addressed  by  one 
person  to  another,  other  than  a  banker,  signed  by  the  person 
giving  It  requiring  the  person  to  whom  it  is  addressed  to  pay 
m  the  United  States,  at  a  fixed  or  determinable  future  time  a 
sum  certain  in  dollars  to  the  order  of  a  specified  person."       ' 

The  trade  acceptance  system  means  the  substitution  of  the 
trade  acceptance  for  the  system  of  open  book  accounts  now 
generally  employed  in  the  United  States. 

The  use  of  trade  acceptances  has  been  greatly  encouraged  as 

JTf  r.  ''*.  '^  *'  ^"•^'■"'  ^'''^'  B°^^d  whereby  an 
acceptance  that  IS  drawn  by  the  seller  on  the  purchaser  of  goods 
sold  and  that  has  a  maturity  at  time  of  purchase  or  disS 


LECTURE    X 


125 


of  not  more  than  90  days,  exclusive  of  days  of  grace,  may  be 
discounted  at  a  Federal  Reserve  Bank. 

The  form  of  Trade  Acceptance  is  shown  in  Illustration  No. 
no. 


LECTURE  XI 

TREATMENT  OF  THE  INVENTORY.  PURCHASES 

AND  SALES  ACCOUNT  AT  THE  TIME 

OF  CLOSING  THE  BOOKS 

Introdurtwy.-In  Lectures  VII-VIII,  we  illustrated  the  treat- 
ment of  the  merchandise  account  at  the  time  of  closing  the 
books.  At  that  time,  it  will  be  remembered,  we  said  that  "in 
order  to  determine  the  gain  or  loss  on  merchandise  sold,  it  is 
necessary  to  credit  the  merchandise  account  with  the  inventory 
at  the  end  of  the  period;  and,  if  the  merchandise  account  is 
credited  some  account  must  be  debited  in  order  not  to  disturb 
the  equihbnum  of  the  ledger."  We  thereupon  debited  a  new 
merchandise  account  to  record  the  amount  of  merchandise  on 
Hand  at  the  beginning  of  the  new  period 

The  same  rule  (i.e.,  that  the  inventory  of  merchandise  at  the 
end  of  the  period  must  be  recorded  on  the  books  before  the 
^m  or  loss  on  merchandise  sold  can  be  determined)  applies 
If  the  merchandise  account  is   subdivided  into  an   inventory 
purchases,  and  sales  account. 

The  merchandise  on  hand  at  the  end  of  the  period  is  recorded 
m  the  Im-entory  Account  by  debiting  "Inventory  New  Account" 
and  crediting    Inventory  Old  Account."    The  balance   in    the 
Inventory  Old  Account"  then    represents  the  increase  or  de- 
crease m  mventoor,  and  is  closed  into  Profit  &  Loss  Account. 

The  balance  m  the  "Purchases  Account"  represents  the  amount 
of  merchandise  purchased  during  the  period,  and  is  treated  as 
an  expense,  offset  by  Sales  Account,  which  represents  the  income 
derived  from  sales  of  merchandise  and  is  treated  as  income 

For  the  purpose  of  illustrating  why  "Purchases  Accouni"  is 
treated  as  an  expense  account  and  why  "Sales  Account"  is 
treated  as  an  income  account,  let  us  first  solve  the  following 
problem  arithmetically :  ""owing 

A  merchant  begins  business  with  $10,000  worth  of  merchan- 
oise  on  hand. 

He  purchases  $30,000  worth  of  merchandise. 
His  sales  amount  to  $40,000. 

ffis  inventory  at  the  end  of  the  period  amounts  to  $5,000. 
What  IS  his  profit  ?  vo,^^^. 

126 


LECTURE    XI 

We  may  solve  the  problem  in  the  following  manner 

Illustration  No.  iii 
Method  I 

Amount  realized  on  sales  of  merchandise 
Cost  of  Sales 

Inventory  at  beginning 

Purchases 


127 


Total 
Deduct  inventory  at  end  of  period 


$10,000 
30,000 

$40,000 
5,000 


Cost  of  Goods  Sold 
•Gross  Profit  on  Sales 

Or,  we  may  solve  the  problem  in  this  manner: 

Method  2 
Amount  realized  on  sales  of  merchandise 
Cost  of  Sales 

Purchases  $30,000 

.Add:  Decrease  in  Inventory  5^000 

Cost  of  Goods  Sold 
Gross  Profit  on  Sales 


$40,000 


35,000 


$5,000 


$40,000 


35,000 


$5,000 


Let  us  now  record  these  facts  in  accounts  and,  to  simplify 
our  illustration,  let  us  assume  that  the  purchases  and  sales  were 
made  for  cash. 


Illustration  No.  1 12 


Inventory 


(l)     $10,000 


Capital 


$10,000     ( I ) 


Cash 


(3)    $40,000 


$30,000    (2) 


Purchases 


Sales 


(2)    $30,000 


$40,000    (3) 


t 


128 


BOOKKEEPING,   THEORY  AND   PRACTICE 


hfjl 


ii 
I 


Note  that  the  numbers  in  parentheses  indicate  the  double  entries 
made. 

Illustration  No.  jjj 
Qosing  the  inventory,  purchases,  and  sales  accounts 


form,  are  as  follows: 

Adjusting  Entry 
Inventory  New 

To  Inventory  Old 
This  entry  is  made  to  record  the  inventory  at 
the  end  of  the  period. 


$5,000 


$5,ooa 


Note  that,  in  posting  this  entry,  the  credit  to  the  old  account 
is  posted  first.  The  balance  in  the  old  account  is  then  trans- 
ferred to  Profit  &  Loss.  The  debit  to  the  "Inventory  New 
Account"  is  not  posted  until  the  balance  of  the  old  account  has 
been  closed  and  ruled. 


inv< 

mtory 

Balance 

$10,000 

Inventory 
Profit  &  Loss 

$5,000 
5,000 

(I) 
(2) 

$10,000 

$10,000 

(i)     Balance 

$5,000 

Purchases 

Balance 

$30,000 

P.  &  L 

$30,000 

(3) 

Sales 

(4)     P.  &  L. 

$40,000 

Balance 

$40,000 

Profit  &  Loss 

(2)  Inventory 

(3)  Purchases 

$5,000 
30,000 

Sales 

$40,000 

(4) 

• 
The  entries  made  to  close  thes 

e  accounts. 

expres 

sed  in  iour 

nal 

LECTURE   XI 

Profit  &  Loss 

To  Inventory  Old 
This  entry  is  made  to  close  the  inventory  account 

Profit  &  Loss 

To  Purchases 
This  entry  is  made  to  close  the  purchase  account 

Sales 

To  Profit  &  Loss 
This  entry  is  made  to  dose  the  sales  account 


$5,000 


129 


$5,000 


$30,000 


$30,000 


$40,000 


$40,000 


If  we  now  compare  the  Profit  &  Loss  Account  with  the  arith- 
medcal  solution,  Method  2,  it  will  be  found  that  the  same 
amounts  were  used,  to  determine  the  profit  on  merchandise  sold, 
in  both  the  arithmetical  solution  and  the  Profit  &  Loss  Account. 

The  three  factors  used  in  the  arithmetical  solution  to  deter- 
mine the  gain  or  loss  on  merchandise  sold,  are  purchases, 
sales,  and  difference  in  inventory.  By  diflFerence  in  inventory 
is  meant  the  increase  or  decrease  in  inventory.  The  same  fac- 
tors are  used  in  bookkeeping  to  determine  the  gain  or  loss  on 
merchandise  sold. 

The  Purchases  Account,  since  it  shows  a  debit  balance,  is 
treated  as  an  expense  account,  because  the  amount  of  purchases 
is  a  necessary  factor  in  determining  the  gain  or  loss  on  mer- 
chandise sold.  Similarly  Sales  Account,  since  it  shows  a  credit 
balance,  is  treated  as  an  income  account.  The  difference  in 
inventory,  i.e.,  the  decrease  or  increase  in  inventory,  is  treated 
as  an  expense  or  an  income,  depending  upon  the  balance  in  the 
Inventory  Account.  If  the  Inventory  Account,  after  the  mer- 
chandise inventory  at  the  end  of  the  period  has  been  credited 
to  that  account,  shows  a  debit  balance,  it  is  treated  as  an  expense 
or  loss  account;  if  it  shows  a  credit  balance,  it  is  treated  as  a 
gain  or  income  account. 

ACCOUNTS  PARTLY  REAL  AND  PARTLY  NOMINAL 

Introductory.— In  classifying  accounts,  we  said  that  accounts 
may  be  divided  into  two  classes,  viz.,  real  accounts  and  nominal 
accounts.  There  are  some  accounts  which  are  usually  classified 
as  nominal  accounts  although  they  are  mixed,  i.e.,  partly  real 
and  partly  nominal  accounts,  in  that  they  contain  a  real  ele- 
ment, that  is,  an  asset  or  liability  element,  and  a  nominal,  that 
is,  a  loss  or  gain  element.     Examples  of  such  accounts  kept  in 


130  BOOKKEEPING,  THEORY  AND  PRACTICE 


I 


the  practice  set  are  Inventory,  Stationery  &  Printing,  and  In- 
surance Account. 

Treatment  of  accounts  partly  real  and  partly  nominal  at  the 
time  of  closing  the  books.-Accounts  that  are  partly  real  and 
partly  nominal  require  adjustment  at  the  end  of  each  account- 
ing  period.  They  are  adjusted  by  clearing  the  account  of  its 
real  or  nominal  element.  The  account  is  cleared  of  its  real 
element  by  crediting  it  with  the  amount  of  the  inventory  at 
the  end  of  the  period.  In  the  preceding  chapter,  we  illustrated 
the  treatment  of  the  "Inventory  Account"  (a  mixed  account) 
at  the  time  of  closing  the  books.  We  shall  now  illustrate  the 
treatment  of  the  Stationery  &  Printing  and  Insurance  Accounts 
(also  mixed  accounts)  at  the  time  of  closing  the  books. 

Treatment  of  the  "Stationery  &  Printing  Account"— For  the 
purpose  of  illustration,  let  us  consider  the  Stationery  &  Print- 
ing Account  as  it  appears  in  the  ledger  of  the  practice  set  at 
April  30,  19—.  The  condition  of  the  Stationery  &  Printing 
Account  at  April  30,  19—,  is  at  follows : 


Stationery  &  Printing 


19 — 
Mar.   31 
April  30 


$20. 
12.50 


The  balance  in  the  Stationery  &  Printing  Account  represents 
the  amount  of  stationery  and  printing  purchased  during  the 
period  beginning  Mar.  i  and  ending  April  30.  If  there  is  no 
mventory  on  hand  at  the  end  of  this  period,  this  account  is 
treated  as  a  nominal  (expense)  account  at  the  time  of  closing 
the  books.  As  a  rule,  however,  there  is  an  inventory  of  sta- 
tionery  and  printing  on  hand  at  the  end  of  the  period.  There- 
fore, the  balance  in  this  account  usually  represents  two  elements, 
VIZ.,  an  asset  or  real  element  represented  by  the  amount  of  the 
inventory,  and  an  expense  or  nominal  element  represented  by 
the  amount  of  stationery  and  printing  consumed. 

The  real  element  (i.e.,  the  asset  element)  is  ascertained  by 
taking  a  physical  inventory  of  stationery  and  printed  matter 
at  the  time  of  closing  the  books.  The  nominal  element  (i.e., 
the  expense  element)  is  ascertained  by  crediting  the  Stationer)^ 
&  Printing  Account  with  the  amount  of  the  inventory  at  the 
end  of  the  period.  The  balance  in  that  account  then  represents 
the  nominal  element 


LECTURE  XI 


131 


The  adjusting  journal  entry  necessary  to  record  the  stationery 
and  printing  inventory  on  the  books  is  as  follows: 


April  30,  i(>— 
Stationery  &  Printing  New 

To  Stationery  &  Printing  Old 
To  record  the  inventory. 


lis 


$15 


The  credit  to  the  Stationery  &  Printing  Old  Account  is  posted 
first. 

Stationery  &  Printing 


Mar.   31 
April  30 


$20. 
12.50 


19— 
April  30    Inventory 


$15 


The  balance  then  represents  the  amount  of  stationery  and 
printing  consumed,  and  is  closed  into  Profit  &  Loss  Account. 
The  journal  entry  to  effect  the  closing  of  this  account  is  as 
follows : 


Profit  &  Loss 

To  Stationery  &  Printing  Old 
To  close  the  stationery  and  printing  account. 


$17.50 


$17.50 


The  condition  of  the  Stationery  &  Printing  Account  at  this 
point  is  as  follows: 

_^_^___  Stationery  &  Printing 


Mar.   31 
April  30 


$20. 
12.50 


19— 
April  30    Inventory 
30    P.  &  L. 


$15. 
17.50 


The  account  is  then  ruled,  and  the  debit  to  Stationery  & 
Printing  New  Account  is  posted,  as  of  the  following  day. 


Stationery  &  Printing 

19— 

Mar.   31 
April  30 

$20. 
12.50 

$32.50 

19— 
April  30    Inventory 
30    P.  &  L. 

$15. 
17.50 

$32.50 

May  I     Inv. 

$i:;.oo 

I 


I 

1 

f 

t 


' 


132 


BOOKKEEPING,   THEORY  AND   PRACTICE 


Treatment  of  the  "Insurance  Account"  at  the  time  of  closing 
the  books. — For  the  purpose  of  illustration,  let  us  consider  the 
Insurance  Account  as  it  appears  in  the  ledger  of  the  practice 
set  at  April  30,  19 — .  The  condition  of  the  Insurance  Account 
at  April  30,  19 — ,  is  as  follows: 

Insurance 


19— 

Mar.  31 


$240 


Insurance  is  usually  prepaid ;  i.e.,  the  premiums  usually  cover 
insurance  for  an  entire  year  or  a  longer  period.  For  example, 
the  amount  in  the  Insurance  Account  here  illustrated  represents 
the  premium  paid  Mar.  i,  for  insurance  for  an  entire  year. 
The  insurance  expense  per  month  is,  therefore,  $20.  Thus  it 
will  be  seen  that  the  balance  in  the  Insurance  Account  repre- 
sents two  elements;  viz.,  a  real  element,  represented  by  the 
unexpired  insurance,  and  a  nominal  or  expense  element,  repre- 
sented by  the  expired  portion  of  insurance. 

This  account  is  adjusted  at  the  end  of  the  period  by  treating 
the  prepaid  insurance  as  an  inventory.  The  amount  of  the 
prepaid  insurance  at  April  30,  19 — ,  is  $200.  The  adjusting 
journal  entry  necessary  to  record  the  insurance  inventory  on 
the  books  is  as  follows: 


Insurance  New 

To  Insurance  Old 
To  record  the  inventory. 


April  30,  i^— 


$200 


$200 


The  credit  to  the  Insurance  Old  Account  is  posted  first. 

Insurance 


19— 

Mar.  31 


^240 


19— 
April  30    Inv. 


$200 


The  balance  then  represents  the  expired  portion  of  insurance 
(i.e.,  the  expense  portion),  and  is  closed  into  Profit  &  Loss 
Account. 

The  journal  entry  to  effect  the  closing  of  this  account  is  as 
follows : 


LECTURE   XI 


Profit  &  Loss 

To  Insurance  Old 
To  close  the  insurance  account. 


$40 


133 


$40 


The  condition  of  the  Insurance  Account  at  this  point  is  as 
follows : 


Insurance 


19— 
Mar.  31 


$240 


19— 
April  30    Inv. 

P.  &  L. 


$200 
40 


The  account  is  then  ruled,  and  the  debit  to  Insurance  New 
Account  is  posted  as  of  the  following  day. 


Insurance 


19— 
Mar.  31 


May  I     Inv. 


$240 


$240 
$200 


19— 

April  30    Inv. 

$200 

P.  &  L. 

40 

$240 


In  general,  it  might  be  said  that  all  accounts  that  represent 
goods  purchased  to  be  consumed  by  the  business  itself  and 
prepaid  expense  and  prepaid  income  accounts  require  adjust- 
ment at  the  end  of  the  period  before  the  books  can  be  closed 


Illustration  No.  114 


»i 


3*' 

% 

f 

1 
1 


LECTURE  XII 

ADJUSTING  AND   CLOSING  JOURNAL   ENTRIES 

Introductory. — The  Profit  and  Loss  Account,  after  the  books 
have  been  closed  at  the  end  of  each  period,  should  show  the 
individual  items  of  income  and  expense. 

Therefore,  theoretically,  each  individual  expense  and  income 
account  should  be  transferred  by  separate  journal  entry  to 
Profit  and  Loss  Account. 

In  practice,  however,  only  one  compound  journal  entry  is 
usually  made,  transferring  all  nominal  accounts  with  debit  bal- 
ances to  the  Profit  and  Loss  Account.  The  debit  to  the  Profit 
and  Loss  Account  is  posted  in  detail.  This  has  the  same  effect 
as  making  a  separate  journal  entry  for  every  expense  account 
transferred.  Similarly,  one  compound  journal  entry  is  usually 
made,  transferring  all  nominal  accounts  with  credit  balances 
to  the  Profit  and  Loss  Account.  The  credit  to  Profit  and  Loss 
Account  is  also  posted  in  detail. 

The  adjusting  and  closing  journal  entries  at  April  30,  19 — , 
are  shown  in  Illustration  No.  114. 

The  condition  of  the  Profit  and  Loss  Account  after  the  clos- 
ing journal  entries  have  been  posted,  is  shown  in  Illustration 
No.  115. 

Observe  that  the  debit  to  Profit  and  Loss  Account,  in  amount 
$23,929.48,  in  the  closing  journal  entry,  as  well  as  the  credit  to 
Profit  and  Loss  Account,  in  amount  $27,811.85,  have  been  posted 
in  detail. 

THE  BALANCE  SHEET 

Introductory. — It  will  be  remembered  that,  in  Lecture  I,  we 
said  that  one  of  the  purposes  in  keeping  books  was  to  enable 
the  proprietor  to  know  the  amount  of  gain  or  loss  for  any  given 
period.  The  Profit  &  Loss  Account  not  only  furnishes  this 
information,  but  also  supplies  the  proprietor  with  information 
as  to  the  nature  of  expenses  incurred  and  the  sources  of  income 
received. 

Another  purpose  in  keeping  books  is  to  enable  the  proprietor 
to  know  what  his  financial  condition  is.    This  information  he 


134 


__     ■O-^'wJ^    c*-«^ 


"^Sl^^^a 


i 


INTENTIONAL  SECOND  EXPOSURE 


f       I 


■  '   fc 


LECTURE  XII 

ADJUSTING  AND   CLOSING  JOURNAL   ENTRIES 

Introductory. — The  Profit  and  Loss  Account,  after  the  books 
have  been  closed  at  the  end  of  each  period,  should  show  the 
individual  items  of  income  and  expense. 

Therefore,  theoretically,  each  individual  expense  and  income 
account  should  be  transferred  by  separate  journal  entry  to 
Profit  and  Loss  Account. 

In  practice,  however,  only  one  compound  journal  entry  is 
usually  made,  transferring  all  nominal  accounts  with  debit  bal- 
ances to  the  Profit  and  Loss  Account.  The  debit  to  the  Profit 
and  Loss  Account  is  posted  in  detail.  This  has  the  same  effect 
as  making  a  separate  journal  entry  for  every  expense  account 
transferred.  Similarly,  one  compound  journal  entry  is  usually 
made,  transferring  all  nominal  accounts  with  credit  balances 
to  the  Profit  and  Loss  Account.  The  credit  to  Profit  and  Loss 
Account  is  also  posted  in  detail. 

The  adjusting  and  closing  journal  entries  at  April  30,  19 — , 
are  shown  in  Illustration  No.  114. 

The  condition  of  the  Profit  and  Loss  Account  after  the  clos- 
ing journal  entries  have  been  posted,  is  shown  in  Illustration 
No.  115. 

Observe  that  the  debit  to  Profit  and  Loss  Account,  in  amount 
$23,929.48,  in  the  closing  journal  entry,  as  well  as  the  credit  to 
Profit  and  Loss  Account,  in  amount  $27,811.85,  have  been  posted 
in  detail. 

THE  BALANCE  SHEET 

Introductory. — It  will  be  remembered  that,  in  Lecture  I,  we 
said  that  one  of  the  purposes  in  keeping  books  was  to  enable 
the  proprietor  to  know  the  amount  of  gain  or  loss  for  any  given 
period.  The  Profit  &  Loss  Account  not  only  furnishes  this 
information,  but  also  supplies  the  proprietor  with  information 
as  to  the  nature  of  expenses  incurred  and  the  sources  of  income 
received. 

Another  purpose  in  keeping  books  is  to  enable  the  proprietor 
to  know  what  his  financial  condition  is.    This  information  he 


Illustration  No.  114 


0    ■ 


\/^^iJjU 


/f 


s/dM 


o. 


■\0 ^C..f\.<.t  <t. 


If 


134 


igt!''B!g'glW' <fW'll|li'J'W|WI'y' WWiipf* 


Illustration  No.  115 


Oi 


'-^ ;? 


/(-r>-wy 


'?Ii 


yt 


>4f-^M 


J* 


.  |^-u-t*A:..'l^.jP/j 


f: 


/  r 


I? 


p 


I 


^ 

^ 

^ 


iii 


" 


ta 


LECTURE    XII 


135 


secures  from  a  balance  sheet  prepared  from  a  trial  balance  taken 
after  the  books  have  been  closed. 

A  trial  balance  taken  from  the  General  Ledger  at  April  30, 
19 — ,  after  closing,  is  as  follows : 

Illustration  No.  116 

A.  Reid 

Trial  Balance  April  30,  19 — 

(After  closing) 


Cash 

Petty  Cash 

Notes  Receivable 

Customers*  Controlling  Account 

Merchandise  Inventory 

Liberty  Bonds 

Furniture  &  Fixtures 

Auto  Truck 

Creditors'  Controlling  Account 

Notes  Payable 

A.  Reid,  Proprietor 

Stationery  &  Printing 

Insurance 


$2,356.10 

26.34 

2,150.00 

11,808.79 

16,392.50 

1,000.00 

1,025.00 

1,250.00 


1500 
200.00 


$10,785.00 

9,071.30 

16,36743 


$36,223.73      $36,223.73 


In  preparing  a  balance  sheet,  the  assets  and  liabilities  are 
classified  and  grouped  under  appropriate  captions. 

Illustration  No.  117  is  a  balance  sheet  prepared  from  the  trial 
balance  after  closing,  at  April  30,  19—. 


136 


BOOKKEEPING,   THEORY  AND   PRACTICE 


Illustration  No.  J17 


Balance 

Current  Assets 
Cash 

Petty  Cash 
Liberty  Bonds 
Accounts  Receivable 
Notes  Receivable 

A.  REID 
Sheet  April  30, 

Assets 

19— 

$2,356.10 

26.34 

1,000.00 

11,80879 
2,150.00 

Total  Current  Assets 

Inventories 

Merchandise 
Stationery  &  Printing 
Insurance 

$16,392.50 

1500 

200.00 

Total  Inventories 

Fixed  Assets 

Furniture  &  Fixtures 
\uto  Truck 

$1,025.00 
1,250.00 

Total  Fixed  Assets 
Total  Assets 

$17,341.23 


LECTURE    XII 


137 


Current  Liabilities 
Accounts  Payable 
Notes  Payable 


Liabilities  &  Capital 


$10,785.00 
9,071-30 


Total  Current  Liabilities 


A.  Reid,  Proprietor 


$19,856.30 
$16,36743 


$16,607.50 


$2,275.00 
$36,223.73 


$36,223.73 


f 


138 


BOOKKEEPING,  THEORY  AND  PRACTICE 


The  assets  in  this  case  have  been  divided  into  three  groups 
only,  viz.,  Current  Assets,  Inventories,  and  Fixed  Assets. 

Current  assets  are  those  which  are  expected  to  be  turned 
into  cash  within  a  comparatively  short  period  of  time.  By  a 
comparatively  short  period  of  time  is  meant  within  one  year. 
Current  assets  are  also  known  as  "quick  assets,"  "floating 
assets,"  and  "liquid  assets." 

The  merchandise  inventory  is  also  a  current  asset.  However, 
it  is  customary  to  show  all  inventories  under  a  separate  caption. 
Fixed  assets  are  those  which  represent  a  fixed  or  permanent 
investment  of  capital,  i.e.,  capital  which  is  not  available  for 
liquidating  the  current  liabilities  of  the  business,  in  that  it  must 
remain  permanently  invested  in  the  business. 

Current  liabilities  are  those  which  will  have  to  be  paid  within 
a  comparatively  short  period  of  time. 

Arrangement  of  Groups  and  Items.— The  order  in  which  these 
groups  should  appear  in  the  balance  sheet  and  the  order  in 
which  the  items  should  appear  in  the  groups,  depend  upon  the 
purpose  for  which  the  balance  sheet  is  prepared.  A  balance 
sheet  may  be  prepared  (a)  for  the  use  of  the  proprietor  as  a 
guide  for  future  operations  of  the  business,  (b)  for  the  use  of 
bankers  from  whom  request  for  a  loan  has  been  made,  (c)  for 
the  use  of  a  prospective  investor,  (d)  for  the  use  of  creditors 
from  whom  a  request  for  credit  has  been  made. 


1 


! 


\ 


SUPPLEMENTARY  LECTURE  KOTES 

LECTURE  I 

SALES   RETURNS   AND  ALLOWANCES 

Introductory.— At  times,  our  customers  find  it  necessary  to 
return  merchandise  to  us  because  of  some  defect,  or  to  make  a 
claim  for  shortage  or  overcharge,  etc. 

Whenever  such  transactions  are  numerous,  a  separate  journal 
known  as  the  Sales  Returns  Journal  and  another  journal  known 
as  the  Sales  Allowance  Journal  are  kept.  Whenever  such  trans- 
actions, however,  are  infrequent,  only  one  journal  is  kept  for 
both  sales  returns  and  sales  allowances.  Such  a  journal  is 
known  as  the  Sales  Returns  and  Allowance  Journal. 

Form  of  Sales  Returns  and  Allowance  Journal— The  Sales 
Returns  and  Allowance  Journal  has  no  special  form.  It  usually 
consists  of  loose-leaf  sheets  or  carbon  copies  of  credit  memo- 
randa sent  to  customers.  These  sheets  or  carbon  copies  of 
credit  memoranda,  when  placed  in  a  binder,  constitute  the  Sales 
Returns  and  Allowance  Journal.  An  Abstract  Sales  Returns 
and  Allowance  Journal  is  frequently  used  for  the  purpose  of 
classifying  sales  returns  and  allowances. 

Source  of  information  from  which  entries  are  made  on  the 
Sales  Returns  and  Allowance  Journal.— When  merchandise  is 
returned  to  us,  the  customer  usually  sends  us  an  invoice.  This 
invoice,  however,  is  not  the  source  of  information  from  which 
the  entry  is  made  in  the  Sales  Returns  and  Allowance  Journal. 
The  source  of  information  from  which  the  entry  is  made  in  this 
book  and  from  which  the  credit  memorandum  is  written,  is  the 
ticket  issued  by  our  receiving  department  at  the  time  the  goods 
are  actually  received. 

When  an  allowance  is  to  be  made  to  customers,  a  ticket  known 
as  an  allowance  ticket  or  allowance  memorandum  is  issued. 
This  ticket,  when  approved  by  one  in  authority,  becomes  the 
source  of  information  from  which  the  entry  is  made  and  the 
credit  memorandum  issued. 

Posting  from  the  Sales  Returns  and  Allowance  JoumaL— In 
practice,  postings  are  made  daily  from  the  Sales  Returns  and 
Allowance  Journal  to  the  credit  of  customers'  accounts  in  the 

139 


140 


BOOKKEEPING,   THEORY  AND   PRACTICE 


i*^ 


Customers'  Ledger.  At  the  end  of  each  month,  the  total  for 
the  month  is  posted  to  the  debit  of  Sales  Account  and  to  the 
credit  of  Customers'  Controlling  Account  in  the  General  Ledger. 
If  an  account  is  kept  in  the  ledger  for  Sales  Returns  and  Allow- 
ances, it  follows  that  this  account,  instead  of  Sales  Account, 
must  be  debited  at  the  end  of  the  month.  Likewise,  when  sep- 
arate accounts  are  kept  in  the  ledger  for  Sales  Returns  and  for 
Sales  Allowances,  as  is  usually  the  case  when  separate  journals 
are  kept,  the  Sales  Returns  Account  and  the  Sales  Allowances 
Account,  instead  of  Sales  Account,  must  be  debited  at  the  end 
of  the  month. 

PURCHASE  RETURNS  AND  ALLOWANCES 

Introductory. — Most  concerns  have  occasion  to  return  goods 
which  have  been  purchased.  Occasionally,  also,  the  necessity 
arises  for  making  a  claim  against  a  creditor  for  shortage,  im- 
perfection, overcharge,  etc. 

As  in  the  case  of  sales  returns  and  allowances,  separate  jour- 
nals may  be  used.  Usually,  however,  purchase  returns  and 
allowances  are  recorded  in  the  same  book. 

Form  of  Purchase  Returns  and  Allowance  Journal — The  Pur- 
chase Returns  and  Allowance  Journal  usually  takes  the  same 
form  as  the  Purchase  Journal ;  i.e.,  it  is  a  coliminar  ruled  book 
with  distribution  columns.  The  need  of  such  a  book  for  pur- 
chase returns  and  allowances  is  obvious.  Merchandise  and 
goods  other  than  merchandise,  such  as  stationery,  auto  supplies, 
machinery,  or  furniture,  are  sometimes  returned.  In  this  case, 
different  accounts  are  involved  making  necessary  the  use  of  a 
columnar  ruled  book. 

Source  of  information  from  which  entries  are  made  on  the 
Purchase  Returns  and  Allowance  Journal. — In  every  well  sys- 
tematized business,  an  entry  must  be  made  on  the  books  of 
account  whenever  goods  are  received.  Likewise,  an  entry  must 
be  made  in  the  books  of  account  whenever  goods  are  shipped. 
Therefore,  when  goods  are  returned  to  a  creditor,  an  entry  is 
made  in  the  Purchase  Returns  and  Allowance  Journal.  The 
source  of  information  from  which  the  entry  is  made  and  the 
invoice  written,  is  the  shipping  ticket  issued  when  the  goods  are 
shipped  and  not  the  credit  memoranda  received  from  the  creditor. 
When  the  necessity  for  making  a  claim  against  a  creditor 
for  an  allowance  arises,  a  charge  ticket  is  issued.     This  is  the 


SUPPLEMENTARY    LECTURE    I 


141 


I 


source  of  information  from  which  the  entry  is  made  in  the 
Purchase  Returns  and  Allowance  Journal  and  the  invoice  writ- 
ten. It  should  be  noted  that,  although  the  creditor  usually 
issues  a  credit  memorandum,  no  entry  is  made  on  receipt  of 
the  credit  memorandum. 

Posting  from  the  Purchase  Returns  and  Allowance  Journal.— 
In  practice,  postings  are  made  daily  from  the  Purchase  Returns 
and  Allowance  Journal  to  the  debit  of  creditors'  accounts  in  the 
Creditors'  Ledger.  At  the  end  of  each  month,  the  total  for  the 
month  is  posted  to  the  debit  of  Creditors'  Controlling  Account, 
and  the  totals  of  the  various  columns  are  posted  to  the  credit 
of  their  respective  accounts.  Purchases  Account  is  credited 
with  the  total  sum  of  merchandise  allowances  and  returns.  If 
an  account  is  kept  in  the  ledger  for  purchase  returns  and  allow- 
ances, it  follows  that  this  account  must  be  credited  at  the  end 
of  the  month  for  merchandise  allowances  and  returns,  instead  of 
the  Purchases  Account.  Likewise,  when  separate  accounts  are 
kept  in  the  ledger  for  purchase  returns,  and  for  purchase  allow- 
ances (as  is  usually  the  case  when  separate  journals  are  kept), 
the  Purchase  Returns  Account  and  the  Purchase  Allowance 
Account  must  be  credited  at  the  end  of  each  month,  instead  of 
the  Purchases  Account. 

FREIGHTS 

Freight  defined. — Freight  is  the  compensation  paid  for  the 
transportation  of  goods. 

Introductory. — ^When  goods  purchased  or  sold,  are  to  be  de- 
livered by  freight  or  express,  provision  is  usually  made  in  the 
terms  of  sale  for  the  payment  of  the  freight  or  express  charges. 

Unless  otherwise  indicated,  when  goods  are  sold  P.O.B.  point 
of  shipment,  the  freight  charges  are  to  be  borne  by  the  pur- 
chaser; if  sold  P.O.B.  destination,  the  freight  charges  are  to  be 
borne  by  the  seller.  In  some  instances,  freight  is  borne  by 
both  the  seller  and  the  purchaser  in  agreed  amounts.  Such  is 
the  case  when  goods  are  sold  subject  to  freight  allowance  not 
exceeding  a  certain  amount  per  cwt.  For  example,  goods  sold 
subject  to  freight  allowance  not  exceeding,  let  us  say,  25c  per 
cwt. 

Meaning  of  the  Commercial  Terms  F.O.B.,  F.A.S.,  and  C.A.F. 

— F.O.B.  means  "free  on  board."    F.A.S.  means  "free  aboard 
steamer."    C.A.F.  means  "cost  and  freight." 


m 


I 


142 


BOOKKEEPING,   THEORY  AND   PRACTICE 


Since  freight  is  paid  either  on  goods  purchased  or  on  goods 
sold,  and  since  freight  paid  on  merchandise  purchased  increases 
the  cost  of  such  merchandise,  and  freight  paid  on  merchandise 
sold  decreases  the  amount  realized  from  the  sale  of  such  mer- 
chandise, it  follows  that  the  best  method  of  accounting  for 
such  items  is  that  of  keeping  two  separate  accounts.  Hence 
it  is  customary  to  keep  a  separate  account  for  Inward  Freight 
and  Express  and  a  separate  account  for  Outward  Freight  and 
Express. 

Merchandise  purchased  F.O.B.  point  of  shipment— Unless 
otherwise  agreed,  if  we  purchase  merchandise  f.o.b  point  of 
shipment,  freight  is  to  be  borne  by  us. 

(«)  If  the  goods  are  shipped  to  us  freight  collect,  the  freight 
will  be  paid  by  us  on  receipt  of  the  goods.  The  double  entry 
to  be  made  by  us  when  the  freight  is  paid  is  as  follows: 

Inward  Freight  and  Express 
To  Cash  or  Petty  Cash 

(b)  If  the  seller  for  any  reason  prepays  the  freight,  he  will 
render  us  an  invoice  for  the  freight.  The  double  entry  to  be 
made  on  our  books  on  receipt  of  the  invoice  is  as  follows: 

Inward  Freight  and  Express 
To  Creditor 

Merchandise  purchased  F.O.B.  destination.  Unless  otherwise 
agreed,  if  we  purchase  merchandise  f.o.b.  destination,  freight  is 
to  be  borne  by  the  shipper. 

(a)  If  the  freight  is  prepaid,  no  entry  need  be  made  on  our 
books. 

(b)  If  the  shipment  is  made  freight  collect,  freight  will  be 
paid  by  us  on  arrival  of  the  goods.  Since,  however,  the  freight 
is  to  be  borne  by  the  shipper,  it  follows  that  his  account  must 
be  debited.  The  double  entry  to  be  made  on  our  books  is  as 
follows : 

Creditor 

To  Cash  or  Petty  Cash 

(c)  Some  concerns  follow  the  practice  of  shipping  goods 
freight  collect,  but  make  a  deduction  from  the  amount  of  the 
invoice  for  the  freight. 

Let  us  assume,  for  the  purpose  of  illustration,  that  we  pur- 
chase $1,000  worth  of  merchandise  from  Eclipse  Mills;  that  the 


SUPPLEMENTARY    LECTURE    I 


143 


freight  is  to  be  borne  by  them;  that  they  ship  freight  collect; 
and  that  they  follow  the  practice  of  allowing  for  the  freight 
on  the  invoice  covering  the  merchandise. 

They  would  render  us  an  invoice  as  follows: 


Merchandise 
Less  freight 


$1,000 
10 


$990 


The  double  entry  to  be  made  on  our  books  on  the  receipt  of 
the  goods  is  as  follows: 


Merchandise 

To  Creditor  (Eclipse  Mills) 
To  Inward  Freight  and  Express 


$1,000 


$990 

10 


When  we  pay  the  freight,  the  double  entry  to  be  made  on  our 
books  is  as  follows: 


Inward  Freight  and  Express 
To  Cash 


$10 


$10 


Thus  it  will  be  seen  that  insofar  as  this  transaction  is  concerned. 
Inward  Freight  and  Express  Account  will  be  in  balance,  having 
been  debited  and  credited  in  the  amount  of  $10. 

Sales  made  f.o.b.  point  of  shipment — Unless  otherwise  agreed, 
if  we  sell  merchandise  f.o.b.  point  of  shipment,  the  freight  is 
to  be  borne  by  the  customer. 

(a)  If  shipment  is  made  by  us  freight  collect,  no  entry  will 
be  made  on  our  books  covering  the  freight. 

(b)  If,  on  request  of  the  customer,  we  ship  the  goods  freight 
prepaid,  it  follows  that  the  customer's  account  must  be  debited 
with  the  freight  charges. 

The  usual  procedure,  in  this  case,  is  to  add  to  the  invoice 
covering  the  merchandise  shipped,  the  amoimt  of  freight  pre- 
paid. Let  us  assume,  for  the  purpose  of  illustration,  that  we 
sell  Dublin  &  Co.  merchandise  in  amount  $1,000;  that  freight 
is  to  be  borne  by  them ;  and  that,  as  an  accommodation  to  them, 
we  prepay  the  freight.  Assuming  the  amount  of  freight  paid 
by  us  to  be  $10,  our  invoice  would  be  as  follows: 


Merchandise 
Freight  Prepaid 


$1,000 
10 


$1,010 


144 


BOOKKEEPING,  THEORY  AND  PRACTICE 


When  we  pay  the  freight,  the  double  entry  to  be  made  on 
our  books  is  as  follows: 


Freight  Prepaid 

To  Cash  or  Petty  Cash 


$10 


$10 


The  double  entry  to  be  made  in  the  Sales  Journal  covering 
the  merchandise  sold  and  freight  charges  is  as  follows: 


Customer  (Dublin  &  Co.) 
To  Sales 
To  Freight  Prepaid 


$1,010 


$1,000 
10 


The  "Freight  Prepaid  Account"  is  used  as  a  clearing  account. 
To  it  are  charged  all  payments  of  freight  to  be  borne  by  cus- 
tomers. It  is  closed  by  charging  the  customer  and  crediting 
freight  prepaid. 

Some  concerns  follow  the  practice  of  rendering  a  separate 
invoice  for  the  freight  paid.  In  this  case,  the  double  entry  to 
be  made  from  the  Sales  Journal  is  as  follows: 


Customer  (Dublin  &  Co.) 
To  Sales 


$1,000 


$1,000 


The  double  entry  to  be  made  from  the  cash  or  petty  cash 
journal  is  as  follows: 


Customer  (Dublin  &  Co.) 
To  Cash 


$10 


$10 


Sales  made  f.o.b.  destination. — ^Unless  otherwise  agreed,  if 
we  sell  merchandise  f.o.b.  destination,  freight  is  to  be  borne 
by  us. 

(a)  If  the  freight  is  paid  by  us  when  the  goods  are  shipped, 
the  following  double  entry  is  made: 

Outward  Freight  and  Express 
To  Cash  or  Petty  Cash 

(h)  If  we  ship  the  goods  freight  collect,  the  customer  in 
all  probability  will  send  us  an  invoice  covering  the  amount  of 
freight  paid  by  him,  or  will  make  a  deduction  for  the  freight 
charges  paid  by  him  when  he  remits.  The  double  entry  to  be 
made  by  us  on  receipt  of  the  invoice  is  as  follows : 

Outward  Freight  and  Express 
To  Customer 


SUPPLEMENTARY    LECTURE    I 


145 


(c)  If  we  follow  the  practice  of  making  all  shipments  freight 
collect  and,  at  the  same  time,  make  a  deduction  for  the  freight 
on  the  invoice  covering  merchandise  sold,  the  double  entry  to 
be  made  on  our  books  would  be  as  follows: 

Customer 

Outward  Freight  and  Express 
To  Sales 

In  general. — Freight  paid  by  us  on  goods  returned  to  us  by 
a  customer  must  be  charged  to  Outward  Freight  and  Express 
if  the  freight  is  to  be  borne  by  us,  since  freight  paid  on  sales 
decreases  the  amount  realized  from  sales.  Similarly,  freight 
paid  by  us  on  merchandise  returned  by  us  to  a  creditor,  must 
be  charged  to  Inward  Freight  or  Express  if  the  freight  is  to 
be  borne  by  us,  since  freight  paid  by  us  on  merchandise  pur- 
chased increases  the  cost  of  such  purchases. 

Only  freight  paid  by  us  on  merchandise  purchases  or  purchase 
returns  should  be  charged  to  Inward  Freight  and  Express 
Account.  Freight  paid  on  purchases  other  than  merchandise 
must  be  charged  to  the  same  account  as  the  goods  purchased 
are  charged  to.  To  illustrate:  freight  paid  on  an  auto  pur- 
chased should  be  charged  to  Auto  Truck  Account,  and  freight 
paid  on  furniture  purchased  should  be  charged  to  Furniture  and 
Fixtures  Account. 


10 


w 


PART  II 
STATEMENTS   OF   TRANSACTIONS 


I 


*,  J(. 


ASSIGNMENT  I 

Outline : 

(i)     Outline  of  the  course. 

(2)  Exercise  in  the  application  of  debits  and  credits 

as  applied  to  personal  accounts. 

(3)  Exercise  in  writing  the  following  business  papers : 

(a)  Purchase  invoices. 

(b)  Sales  invoices. 

(c)  Check  stubs  and  checks. 

Laboratory  Exercise. 

Set  up  on  loose  sheets  of  paper,  skeleton  (T) 
ledger  accounts  for  each  customer  and  creditor 
listed  below,  recording  therein  the  following 
transactions : 

Jan.  2.    A.  Reid  starts  in  business  investing  in  cash     $10,000 

4.  Purchased  on  account  from  Bell  &  Co.  mer- 

chandise in  amount c  000 

5.  Sold  on  account  to  Cann  &  Co.  merchandise 

inamount ^^^ 

5.     Sold  on  account  to  J.  Link  mdse.  in  amount  1,500 

10.  Sold  on  account  to  L.  Crane  mdse.  in  amount  700 

11.  Received  from  Cann  &  Co.  check 2,000 

12.  Paid  Bell  &  Co.  on  account i^qo 

14.  Purchased  on  account  from  Reynolds  &  Co. 

mdse.  in  amount 2  000 

15.  Sold  on  account  to  L.  Crane  mdse.  in  amount  '700 

18.  Received  from  J.  Link  on  account i  000 

19.  Purchased  on  account  from  Bell  &  Co 2000 

20.  Sold    to    I.    Hughes    on    account    mdse.    in 

amount  ^,000 

26.  Received  from  J.  Link  check,  balance  of  acct.  '500 

27.  Paid  Bell  &  Co.  balance  of  invoice  Jan.  4. .  3,500 

28.  Sold  on  account  to  DubHn  &  Co.  mdse.  in 

^'"o^t  ^^ 

29.  Sold  on  account  to  W.  Hall  mdse.  in  amount  800 

30.  Received  from  L.  Crane  check  in  amount. .  700 


149 


■I 


ISO 


BOOKKEEPING,   THEORY  AND   PRACTICE 


Home  Work: 


(a)  Write  purchase  invoices  for  January  trans- 

actions numbered  2,  3,  4,  5,  6,  7,  and  8. 

(b)  Write  sales   invoices   for  January  transac- 

tions numbered  9,  and  10. 

(c)  Fill  out  the  check  stubs  and  checks  for  Jan- 

uary transactions  niunbered  2,  11,  and  12. 


I  I 


u 


ASSIGNMENT  U 
Outline : 

Enter  January  transactions   i   to    12  inclusive.    This 

STATEMENT    OF    TRANSACTIONS 

JANUARY   TRANSACTIONS 
A.  Reid  decides  to  go  into  business  for  himself  as  a  iobh^r 
m  woolens.    He  has  $10,000  in  cash  to  invest     He  rms   a 
suitable  store  at  No.  320  Madison  Avenue.  New  York  0^1^ 

"Thfbc^.':"''"^";"''  '^'^''^  *°  begin' work  TmtdtTe'ly 
The  bookkeeper  confers  with  Mr.  Reid  as  to  his  ideas  of  the 

limtdlt\''^'    ""'■  ^^-^'^  '^--'^'^^^  «^  b:>Lke;rng  i 
limited,  but  he  mstructs  the  bookkeeper  to  Hp  in  o  ^    K 

furnish  him  with  information  as  to  7/ ^oSl  ^1  "s    „5Tt"otI° 

Thrb  ■  .r"""'"":  ""'■  ^""^  '^  '"  ^--  «f  -  simple  W 

ber  of  bolr"'      "''°'''  '^"'^^  *°  "^^  *^  minimum'^^r 
Der  of  books,  viz.,  a  journal  and  a  ledeer    and  tn  r^r..^  T 

transactions  by  the  double  entry  system  "''^  '^^ 

Instructions : 

Number  the  pages  in  "The  Journal"  (page  style) 
Number  the  pages  in  the  "General  I^dger^L^fs  vie) 
begjnnmg  with  the  first  ledger-ruled  page  '^ 

'rth:;X:lr:-^°-'-^^^i-  accounts 

Note:    The  letters  indicate  on  what  part  of  the  page 
the  account  ,s  to  be  opened.    Where  two  a^ 

A  ,„d,cates  the  account  to  be  opened  at  the 
top  of  he  page;  letter  "B,"  the  account  to  be 
opened  in  the  middle  of  the  page 


151 


I. 
2. 

3- 


J 


f 


I 


(l:.| 


152  BOOKKEEPING,   THEORY  AND   PRACTICE 

lA.  Cash. 

5A.  Furniture  &  Fixtures. 

8A.  A.  Reid,  Proprietor. 

loA.  Merchandise. 

1 1  A.  Expense. 

28A.  Cann  &  Co Brooklyn,  N.  Y. 

28B.  J.  Link Newark,  N.  J. 

29A.  L.  Crane City. 

29B.  I.   Hughes City. 

30A.  Dublin  &  Co Chicago,  111. 

30B.  W.  Hall Mt.  Vernon,  N.  Y. 

36A.  Tower  Mfg.  Co City. 

36B.  John  Slater City. 

37A.  Sellew  &  Co City. 

37B.  N.  Y.  Desk  Co City. 

38A.  Bell  &  Co Passaic,  N.  J. 

38B.  Baldwin  Mfg.  Co Altoona,  Pa. 

39A.  Reynolds  &  Co Passaic,  N.  J. 

39B.  Taylor  Mfg.  Co Paterson,  N.  J. 

The  transactions  for  the  month  of  January  were  as  follows: 

Transaction  No.  i  January  2,  19    . 

A.  Reid  opens  an  account  with  the  Wall  Street  Trust 
Company,  depositing  therein  $10,000  in  cash. 

Transaction  No.  2  January  2,  19    . 

Paid  by  check  #1,  Jay  Realty  Co.,  rent  for  January, 
$200. 

Transaction  No.  3  January  3,  19    . 

Received  invoice,  in  amount  $50,  from  Tower  Mfg.  Co., 
for  stationery. 

Transaction  No.  4  January  4,  19    . 

Received  invoice,  in  amount  $30,  from  John  Slater,  for 
printed  matter. 

Transaction  No.  5  January  4,  19    . 

Received  invoice,  in  amount  $700,  from  Sellew  &  Co., 
covering  contract  for  installation  of  partitions  and  shelves. 

Transaction  No.  6  January  4,  19    . 

Received  invoice,  in  amount  $60,  from  N.  Y.  Desk  Co., 
for  desks  and  chairs. 


ASSIGNMENT    II 


153 


Transaction  No.  7  January  4,  19    .  ' 

Received  invoice,  in  amount  $5,000,  from  Bell  &  Co., 

for  merchandise  purchased  as  follows: 

625  yds.  Serge  (all  wool)  at  $1.60 

1000    "      Flannel  "  1.20 

1000    "      Fancy  Suitings        "  1.30 

1000    "     Cloakings  "  1.50 


$1,000 
1,200 
1,300 
1,500 


$5,000 


Transaction  No.  8  January  4,  19    . 

Received  invoice,  in  amount  $6,500,  from  Baldwin  Mfg. 
Co.,  for  merchandise  purchased: 
1500  yds.  Broadcloth  at  $3.20  $4,800 

680    "      Flannel  "      1.20  816 

680    "     Fancy  Suitings       "      1.30  884     $6,500 


Transaction  No.  9  January  5,  19    . 

Sold  to  Cann  &  Co.,  Brooklyn,  N.  Y. 
500  yds.  Broadcloth  at  $4.00  $2,000 

Shipping  Ticket  No.  i 


Transaction  No.  10 

Sold  to  J.  Link,  Newark,  N.  J. 
1000  yds.  Flannel  at  $1.50 
Shipping  Ticket  No.  2 


January  5,  19    . 
$1,500 


Transaction  No.  11  January  5,  19    . 

Purchased  for  cash  (check  #2)  safe  from  Marvin  Hall 
Safe  Co.,  $75. 

Transaction  No.  12  January  5,  19    . 

Drew  check  #3  to  the  order  of  J.  Smith,  bookkeeper, 
for  salaries,  $45.  Paid  salary  of  bookkeeper,  $25,  and 
salary  of  clerk,  $20. 


Home  Work: 


(a)  Write  purchase  invoices  for  January  trans- 

actions numbered  17,  21,  and  22. 

(b)  Write  sales  invoices   for  January  transac- 

tions numbered  13,  18,  23,  27,  and  28. 

(c)  Fill  out  check  stubs  and  checks  for  January 

transactions  15,  16,  20,  24,  26,  30,  and  31. 


Uir 


ASSIGNMENT    III 


I 


[I 


Outline : 


ASSIGNMENT   III 

Enter  January  transactions  13  to  31  inclusive.  This 
work  is  to  be  done  in  class  under  the  guidance  of  the 
instructor. 

STATEMENT   OF   TRANSACTIONS 
JANUARY    TRANSACTIONS    CONTINUED 


January  10,  19    . 


$600 
100 


$700 


Transaction  No.  13 

Sold  to  L.  Crane,  City. 
300  yds.  Serge  (all  wool)  at  $2.00 
50    "     Golf  Cloth  "     2.00 

Shipping  Ticket  No.  3 

Transaction  No.  14  January  11,  19    . 

Received  from  Cann  &  Co.,  check  for  $2,000,  in  pay- 
ment of  invoice  dated  Jan.  5,  19    . 

Transaction  No.  15  January  12,  19    . 

Paid  Bell  &  Co.  (check  #4)  on  account,  $1,500. 

Transaction  No.  16  January  12,  19    . 

Drew  check  #5  to  the  order  of  J.  Smith  for  salaries, 

$45. 

Transaction  No.  17  January  14,  19    . 

Received   from  Reynolds   &  Co.,  invoice,   in  amount 
$2,000,  for  merchandise  purchased. 
625  yds.  Broadcloth  at  $3.20  $2,000 


Transaction  No.  18 

Sold  to  L.  Crane,  City. 
400  yds.  Fancy  Suitings  at  $1.75 
Shipping  Ticket  No.  4 


January  15,  19    . 


$700 


Transaction  No.  19  January  18,  19    . 

Received  on  account  from  J.  Link  check,  in  amount 
$1,000. 

154 


ISS 


Transaction  No.  20  January  19,  19 

Drew  check  #6  to  the  order  of  J.  Smith  for  salaries 
$45- 

Transaction  No.  21  January  19,  19 

Received  from  Taylor  Manufacturing  Co.,  invoice,  in 
amount  $5,980,  for  merchandise  purchased: 
1800  yds.  Melton  at  $2.60         $4,680 

1000    "      Fancy  Suitings       "      1.30  1,300     $5,980 


Transaction  No.  22  January  19,  19 

Received  from  Bell  &  Co.,  invoice,  in  amount  $2,000, 
for  merchandise  purchased: 
1250  yds.  Golf  Cloth  at  $1.60  $2,000 


Transaction  No.  23 

Sold  to  I.  Hughes,  City. 
500  yds.  Melton 
100    "     Fancy  Suitings 
100    "     Golf  Cloth 

Shipping  Ticket  No.  5 


January  20,  19    . 


at  $3.25 

1.75 
2.00 


(( 


(( 


$1,625 

175 
200 


$2,000 


Transaction  No.  24  January  26,  19    . 

Paid  by  check  #7,  Bell  &  Co.,  balance  of  invoice 
Jan.  4,  19    ,  $3,500. 

Transaction  No.  25  January  2^,  19    . 

Received  from  J.  Link  check  for  $500,  balance  of  ac- 
count. 

Transaction  No.  26  January  26,  19    . 

Drew  check  #8  to  the  order  of  J.  Smith,  in  amount 
$45,  in  payment  of  salaries. 

Transaction  No.  27  January  28,  19    . 

Sold  to  Dublin  &  Co.,  Chicago,  111. 
100  yds.  Broadcloth  at  $4.00  $400 


50 


Serge 


f( 


2.00 


100 


$500 


Shipping  Ticket  No.  6 


I 


1 


I     .1 


i 


156 


BOOKKEEPING,  THEORY  AND   PRACTICE 


Transaction  No.  28  January  29,  19 

Sold  to  W.  Hall,  Mt.  Vernon,  N.  Y. 
200  yds.  Melton  at  $3.25  $650 


100 


Flannel 


ft 


1.50 


150        $800 


Shipping  Ticket  No.  7 


Transaction  No.  29  January  30,  19    . 

Received  check  $700  from  L.  Crane  in  payment  of 
invoice  January  15,  19    . 

Transaction  No.  30  January  31,  19    . 

Paid  by  check  #9,  Dry  Goods  Journal,  for  advertise- 
ment in  January  issue,  $40. 

Transaction  No.  31  January  31,  19    . 

Paid  by  check  #10,  salary  of  Mr.  Reid  for  the  month 
of  January,  $200. 

Balance  the  check  book. 


Home  Work: 


(i)  Foot  the  pages  in  "The  Journal,"  carrying 
forward  the  totals.  The  total  of  the 
debit  and  the  credit  columns  for  January 
is  $50415- 

(2)  Discontinue  writing  purchase  and  sales  in- 

voices. 

(3)  Fill  out  check  stubs,  and  checks  for  Feb- 

ruary transactions. 


ASSIGNMENT   IV 


Outline : 


(i)     Post  January  transactions. 
(2)     Take  a  trial  balance. 

Note:    This  work  is  to  be  done  in  class  under 
the  guidance  of  the  instructor. 

Home  Work: 

(i)  Begin  on  the  next  page  in  "The  Journal"  and 
enter  therein  February  purchase  and  sales 
transactions  only.  Cash  receipts  and  payments 
will  be  entered  in  the  Cash  Journal,  in  class  at 
the  next  session. 
The  purchase  and  sales  transactions  to  be  re- 
corded in  "The  Journal"  are  as  follows :  34,  35, 

37y  40,  45»  46,  50,  5i>  52,  57»  58,  59»  60,  66, 
69,  and  70. 

(2)    Fill  out  check  stubs  and  write  checks  for  Feb- 
ruary transactions. 


'i 

far 


157 


It 


Ijif 


.  il 


ASSIGNMENT   V 

Outline : 

Enter  February  transactions. 

Note:  February  cash,  and  petty  cash  receipts  and 
payments  only,  are  to  be  recorded  in  class  under 
the  guidance  of  the  instructor. 

Sales  and  purchase  transactions  must  be  re- 
corded outside  of  class. 

STATEMENT   OF   TRANSACTIONS 
FEBRUARY   TRANSACTIONS 

The  bookkeeper  realizes  that  the  amount  of  mechanical  labor 
necessary  in  posting  can  be  greatly  reduced,  and  that  informa- 
tion regarding  receipts  and  payments  of  cash  can  be  had  more 
readily  by  using  a  Cash  Journal  He  therefore  decides  to  sup- 
plement "The  Journal"  with  a  "Cash  Journal"  and  to  supple- 
ment the  latter  with  a  "Petty  Cash  Journal." 

Instructions : 

(i)     Number  the  pages  in  the  "Cash  Journal"  and 

"Petty  Cash  Journal,"  page  style. 
(2)     Open   the    following   accounts   in   the   "General 

Ledger" :  . 

23B.  Interest  &  Discount  Earned.  y 

31A.  Miller  &  Co Albany,  N.  Y.    ^ 

31B.  Stewart  &  Myers Syracuse,  N.  Y. 

32A.  James  T.  Ludlow Boston,  Mass. 

32B.  T.  Wilson  &  Co. ... .  .Bridgeport,  Conn.^ 

33A.  Marshall  &  Co New  Haven,  Conn.  "^ 

33B.  Tompkins  &  Co Philadelphia,  Pa.V"^ 

34A.  Wm.  Bradhurst Boston,  Mass.  -^ 

The  transactions  for  the  month  of  February  were  as  follows : 

Transaction  No.  32  February  i,  19    .    V 

Paid  by  check  #11,  Jay  Realty  Co.,  rent  for  February, 
$200. 

158 


v/ 


ASSIGNMENT   V  j-^ 

Transaction  No.  33  February  i,  19    . 

Paid  by  check  #12,  N.  Y.  Telephone  Co.,  $12.50,  for 
telephone  service. 

Transaction  No.  34  February  2,  19  ^ 

Sold  to  Miller  &  Co.,  Albany,  N.  Y. 
500  yds.  Cloakings  at  $2.00  $1,000 

Terms  2/10,  n/30  Shipping  Ticket  #8 

Transaction  No.  35  February  2,  19    .  >. 

Sold  to  Stewart  &  Myers,  Syracuse,  N.  Y. 
1000  yds.  Fancy  Suitings      at  $1.75  $1,750 

Terms  2/10,  n/30  Shipping  Ticket  #9 

Transaction  No.  36  February  2,  19 

Drew  check  #13,  in  amount  $45,  for  salaries. 

Transaction  No.  37  February  2,  19    . 

Purchased  from  Reynolds  &  Co.  on  account 
3000  yds.  Serge  at  $1.60  $4,800 

Terms  2/10,  n/30 

Transaction  No.  38  February  4,  19    . 

Paid  by  check  #14,  invoice  of  Consolidated  Gas  Co. 
for  January  service,  $12. 

Transaction  No.  39  February  4,  19    . 

Drew  check   #15,   in   amount  $25,  to  the  order  of 
J.  Smith,  bookkeeper,  for  petty  disbursements. 

Transaction  No.  40  February  4,  19    .     l^ 

Received  invoice  from  Bell  &  Co.  for  merchandise  pur- 
chased : 

2000  yds.  Flannels  at  $1.20         $2400 

1000    "     Fancy  Suitings       "     1.30  1,300     $3,700 

Terms  2/10,  n/30 

Transaction  No.  41  February  4,  19    .  (X^ 

Paid  by  check  #16,  John  Slater,  $2940,  covering  in- 
voice of  January  4,  ($30  less  2%  cash  discount  .60). 

Transaction  No.  42  February  5,  19    . 

Paid  by  check  #17,  Sellew  &  Co.,  $700.00,  covering*^ 
invoice  of  January  3. 


y 


J  t 


i6o 


BOOKKEEPING,   THEORY  AND   PRACTICE 


Transaction  No.  43  February  5,  19    . 

Had  pass-book  balanced  at  the  bank.    Received  state-     \y 
ment  showing  a  balance  at  January  31,  19    ,  of  $12,059.17. 

The  bank  has  allowed  $14.17  interest  and  has  returned 
cancelled  checks  i  to  6  inclusive  and  checks  8  and  10. 

Transaction  No.  44  February  5,  19     .       \/ 

Paid  by  check  #18,  Tower  Manufacturing  Co.,  $49, 
covering  invoice  of  Jan.  3,  $50  less  2%  cash  discount 
$1.00. 

Transaction  No.  45  February  6,  19    .y 

Sold  to  James  T.  Ludlow,  Boston,  Mass. 
250  yds.  Cloakings  at  $2.00  $500 

Terms  2/10,  n/30  Shipping  Ticket  #10 

Transaction  No.  46  February  6,  19    \J 

Sold  to  Wm.  Bradhurst,  Boston,  Mass. 
500  yds.  Golf  Cloth  at  $2.00  $1,000 

Terms  2/10,  n/30  Shipping  Ticket  #11 

Transaction  No.  47  February  6,  19    . 

Paid  out  of  petty  cash  for  postage  stamps,  $10. 

Transaction  No.  48  February  9,  19   r 

Drew  check  #19,  for  salaries,  $45. 

Transaction  No.  49  February  9,  19     .       y 

Received  check,  in  amount  $700,  from  L.  Crane  in 
payment  of  invoice  January  lo. 

Transaction  No.  50  February  9,  19    \^ 

Sold  to  T.  Wilson  &  Co.,  Bridgeport,  Conn. 
500  yds.  Golf  Cloth  at  $2.00  $1,000 


200 


<i 


Flannel 


<( 


1.50 


300     $1,300 


Terms  2/10,  n/30 


Shipping  Ticket  #12 


J 


Transaction  No.  51  February  9,  19 

Sold  Marshall  &  Co.,  New  Haven,  Conn. 
550  yds.  Broadcloth  at  $4.00  $2,200 

400    "     Melton  "     3.30  1,320     $3,520 


Terms  2/10,  n/30 


Shipping  Ticket  #13 


ASSIGNMENT    V  161 

Transaction  No.  52  February  11,  19    . 

Sold  to  Cann  &  Co.,  Brooklyn,  N.  Y. 
200  yds.  Cloaking  at  $2.00  $400 

Terms  2/10,  n/30  Shipping  Ticket  #14 

Received  check  from  Stewart  &  Myers,  in  amount 
$1,715,  in  payment  of  invoice  Feb.  2  ($1,750  less  2% 
cash  discount  $35). 

Transaction  No.  54  February  13,  19    .     ^ 

Sold  for  cash,  50  yds.  Serge  at  $2.00 — $100,  less  4% 
cash  discount  $4.00  =  $96.     Shipping  Ticket  #15. 

Transaction  No.  55  February  15,  19    . 

Paid  by  check  #20,  N.  Y.  Edison  Co.,  for  January 
service,  $15. 


(^ 


Transaction  No.  56  February  15,  19    \ 

Paid  by  check  #21,  salaries,  $45. 


Transaction  No.  57  February  18,  19    . 

Received  invoice  from  Baldwin  Mfg.  Co.,  Altoona,  Pa., 
for  merchandise  purchased: 
2000  yds.  Cloakings  at  $1.50  $3,cxx) 

1500    "     Golf  Cloth  "      1.60  2400     $5400 


Terms  2/10,  n/30 

Transaction  No.  58  February  20,  19     .      l/ 

Received  invoice,  in  amount  $12,  from  Tower  Mfg.  Co., 
for  stationery.     Terms  2/10,  n/30. 

/ 

Transaction  No.  59  February  20,  19    . 

Sold  to  Tompkins  &  Co.,  Philadelphia,  Pa. 

1000  yds.  Serge  at  $2.00  $2,000 

500    "      Fancy  Suitings       "      1.75  875 


1000 


« 


Flannels 


(( 


1.50 


1,500     $4,375 


Terms  2/10,  n/30 


Shipping  Ticket  #16 


u 


I 


162 


BOOKKEEPING,   THEORY   AND   PRACTICE 


Transaction  No.  60 

Sold  to  I.  Hughes,  City. 
300  yds.  Melton  at  $3.25 


February  21,  19 


J 


200 


« 


Serge 


i< 


2.00 


$975 
400     $1,375 


Terms  2/10,  n/30  Shipping  Ticket  #17 

Transaction  No.  61  February  21,  19    .     \/ 

Paid  by  check  #22,  Bell  &  Co.,  $2,000,  invoice  of 
Jan.  19. 

Transaction  No.  62  February  23,  19    . 

Paid  by  check  #  23,  salaries,  $45.  , 

Transaction  No.  63  February  23,  19     .    V 

Received  check,  in  amount  $2,000,  from  I.  Hughes  in 
payment  of  invoice  Jan.  20. 

Transaction  No.  64  February  23,  19    .      \/ 

Received  check  from  Marshall  &  Co.,  in  amount 
$3449.60,  in  payment  of  invoice  Feb.  11,  ($3,520  less  2% 
cash  discount  $70.40). 

Transaction  No.  65  February  25,  19    .      l/ 

Paid  by  check  #24,  Baldwin  Mfg.  Co.,  $6,500,  invoice 
dated  Jan.  24.  i 

Transaction  No.  66  February  26,  19    . 

Received  invoice  from  Taylor  Mfg.  Co.  for  merchan- 
dise purchased. 
,  500  yds.  Broadcloth  at  $3.20  $1,600 


/ 


700 


« 


Melton 


« 


2.60 


1,820     $3420 


Terms  2/10,  n/30 


Transaction  No.  67  February  28,  19 

Received  check,  in  amount  $500,  from  Dublin  &  Co., 
in  payment  of  invoice  of  Jan.  28. 


J 


Transaction  No.  68 

February  28 

Paid  out  of  petty  cash: 

"Postage  due"  on  letter  received 

$  .06 

For  cleaning  windows 

2.00 

For  towel  service 

2.25 

,  19  \J 


ASSIGNMENT    V 


February  28,  19 


Transaction  No.  69 

Sold  to  J.  Link,  Newark,  N.  J. 
250  yds.  Fancy  Suitings  at  $1.75  $437-50 

Terms  2/10,  n/30  Shipping  Ticket  #18 

Transaction  No.  70  February  28,  19    . 

Sold  James  T.  Ludlow,  Boston,  Mass. 
200  yds.  Golf  Cloth  at  $2.00  $400 

Terms  2/10,  n/30  Shipping  Ticket  #19 

Transaction  No.  71  February  28,  19    . 

Paid  by  check  #25,  H.  Jenkins,  salesman,  $70,   for 
travelling  expenses  for  February. 

Transaction  No.  72  February  28,  19    . 

Paid  by  check  ^26,  H.  Jenkins,  salesman,  $175,  salary 
for  February. 

Transaction  No.  73  February  28,  19    . 

Paid  by  check  #27,  A.  Reid,  $200,  salary  for  February. /.-''^^ 

Transaction  No.  74  February  28,  19    . 

Paid  by  check  #28,  Dry  Goods  Journal,  for  advertise- 
ment in  February  issue,  $40. 


Home  Work: 


(i)     Foot    the    Journal,    carrying    forward    the^ 
totals.    The  total   of  the   debit   and   the 
credit  column  is  $33,389.50. 

(2)  Post    February    journal    entries    and    then 

post  from  the  cash  book. 

(3)  Take  a  trial  balance. 


li 


ASSIGNMENT   VI 

(i)  Balance  the  cash  book  at  February  28,  19 

(2)  Close  the  books  at  February  28,  19    . 

(3)  Prepare  Balance  Sheet. 

(4)  Prepare  six-column  statement. 

The  inventory  of  merchandise  at  Feb.  28,  19    ,  was  as  fol- 
lows : 


ASSIGNMENT  VII 


2025  yds 

.  Serge 

at 

$1.60 

$3*240 

1380    " 

Flannels 

it 

1.20 

1,656 

1430    " 

Fancy  Suitings 

€t 

1.30 

1,859 

2050    " 

Cloakings 

U 

1.50 

3»o75 

1475     " 

Broadcloth 

it 

3-20 

4,720 

1 100    " 

Melton 

« 

2.60 

2,860 

1400    " 

Golf  Cloth 
Total 

i< 

1.60 

2,240 

$19,650 

Instructions : 


Open  an  account  for  Profit  &  Loss  on  page  20A. 


Home  Work: 


(i)     Balance  the  real  accounts. 

(2)  Fill  out  check  stubs  and  checks  for  March 

transactions. 

(3)  Write  notes  for  March  transactions. 


J 


*f\4*-t4A' 


*>» 


^%..,f'%.^ 


¥ -^ 


w 


>-«^ 


Outline : 


Enter  March  transactions  75  to  loi  inclusive. 

Note:    This  work  is  to  be  done  in  class  under  the 
guidance  of  the  instructor. 

STATEMENT   OF   TRANSACTIONS 
MARCH   TRANSACTIONS 

In  order  to  minimize  the  time  necessary  in  posting,  the  book- 
keeper deades  further  to  supplement  the  books  of  ori^^l^^ 
now  m  use  with  a  "Purchase  Journal"  and  a  "Sales TS^ 
Moreover,  the  bookkeeper  realizes  that,  in  order  tolui^rfhe 
proprietor  wth  such  information  regarding  loss"  rd^a^ 
a^  he  would  hke  to  receive,  it  would  be  necessary,  were  £  to 
continue  using  only  the  "Expense  Account"  and  S;  "Serchal 

Period" Td  VV"^'r  '°*  '""^'^  ^•^^^  ^'  the  Jo?tS; 

period.    And  finding  that  analyzing  accounts  is  a  time-consum- 

of'tS^'Vh    !.:"''  ''"''  "*"•'  ""*^  *°  discontinue  the  use 
fnr  1  .  Mf  f  ^nd'se  Account."  keeping  in  its  stead  an  account 

ISd  Slet"     ""'"  '''''''  ^"•'  "I--tory."  "Purch^"'' 
Note:    Make  an  entry   in  "The  Journal"  transferrins  th^ 

On  Mr.  Reid's  request  to  have  the  "Cash  Account"  in  the 
edger  represent  the  account  with  the  Wall  Street  Trust  (S 
he  bookkeeper  opens  an  account  for  "Petty  Cash"  and  tra^- 

^i^'?:^:^^^r  ^-^  ^--  -e  "Cash  Acer- 

petty  cash  on  hand  «ty  Cash  Account,    the  amount  of 


ill 


164 


I6S 


i66 


BOOKKEEPING,   THEORY   AND   PRACTICE 


!  ' 


If  I 


tf 


New  accounts  to  be  opened  in  the  General  Ledger. 


Asset  Accounts: 

H2A. 

Notes  Receivable. 

^2B. 

Petty  Cash. 

^. 

Merchandise  Inventory 

U4B. 

Potash  &  Perlmutter. 

t«5B. 

C.  O.  D. 

Liability  Accounts: 

67B.    Notes  Payable. 
i4oA.  ^Brewster  &  Co. 
L40B.    Jackson  Mills. 
U^iA.     Eclipse  Mills. 


Expense 

K9B. 

i*3A. 
k^A. 

"rsA. 

LfSB. 

^A. 
W6B. 
^7A. 

U7B. 

|^8B. 

a9B. 


or  Loss  Accounts: 

Stationery  &  Printing. 

Insurance. 

Interest  &  Discount  Expense. 

Purchases. 

Salaries  of  Salesmen. 

Travelling  Expenses  of  Salesmen. 
.  Advertising. 

Salaries — Office. 

Postage. 

Rent. 

Light. 

Telephone  &  Telegrams. 

Cartage. 

Salary — Mr.  Reid. 


Income  or  Gain  Accoimt: 
UsB.    Sales. 

The  transactions  from  March  i  to  March  11  were  as  follows 

Transaction  No.  75  March  i,  19    . 

Paid  by  check  #29,  Quick  Delivery  Co.,  $100,   for 
February  carting. 

Transaction  No.  76  March  i,  19    .   ^ 

Paid  by  check  #30,  Jay  Realty  Co.,  $200,  rent   for 
March.  / 

Transaction  No.  yy  March  2,  19    .  (/ 

Paid  by  check  #31,  Tower  Mfg.  Co.,  $11.76,  invoice 
of  February  20  ($12  less  2%,  $  .24). 


ASSIGNMENT     VII 


Transaction  No,  78  March  2,  19    . 

Received  invoice  from  Brewster  &  Co.,  in  amount  $240, 

for  insurance  on  merchandise  and  furniture  for  one  year 

from  March  i. 


Transaction  No.  79 

Sold  to  Potash  &  Perlmutter. 
400  yds.  Fancy  Suitings        at  $1.75 
200    "     Serge  "     2.00 


March  4,  19    s    ' 

$700 
400     $1,100 


Terms  2/10,  n/30 

Transaction  No.  80  March  4,  19    . 

Sold  (for  cash  on  delivery)  C.  O.  D.  to  Melon  &  Co 
City. 

200  yds.  Fancy  Suitings  at  $1.75  $350 

Terms  2%  cash. 

'  1 

See  transaction  No.  82. 

Transaction  No.  81  March  4,  19    . 

Received  check  from  Tompkins  &  Co.,  in  amount 
$4,287.50  (mvoice  Feb.  20,  $4,375  less  2%  cash  discount 
$87.50). 

Transaction  No.  82  March  4,  19    . 

Received  check  from  Melon  &  Co.,  C.  O.  D.  customer, 
m  amount  $343  (invoice  March  4,  $350  less  2%  cash 
discount,  $7.00). 

Transaction  No.  83  March  4,  19    .  ' 

Received  check  from  W.  Hall,  in  amount  $300,  payment 
on  account  of  invoice  Jan.  29. 

Transaction  No.  84  March  4,  19 

Had  pass-book  balanced  at  the  bank.  Received  state- 
ment showing  balance  at  Feb.  28  of  $7  066.92. 

The  bank  has  allowed  $11.30  interest. Ljetes^harged 
$1.25  for  exchange  and  has  returned  cancelled  checks 
numbers  7,  9,  11  to  24,  and  2y. 

Transaction  No.  85  March  4,  19    . 

Received  from  W.  Hall,  note  dated  March  4,  at  15  days 
with  interest  at  6%,  in  amount  $500,  in  payment  of  bal- 
ance of  account. 


Il 


i68 


BOOKKEEPING,   THEORY  AND   PRACTICE 


I 


41 


( 


i 


Transaction  No.  86  March  4,  19    . 

Gave  Reynolds  &  Co.  note  dated  March  2,  due  in  one 
month  with  interest  at  6%  for  $4,800  in  settlement  of 
invoice  dated  Feb.  2. 

Tpansaction  No.  87  March  5,  19    . 

Sold  to  Marshall  &  Co.,  New  Haven,  Conn. 
500  yds.  Serge  at  $2.00  $1,000 


)y 


ASSIGNMENT     VII 


300 


tt 


Golf  Cloth 


« 


2.00 


600     $1,600 


Terms  2/10,  n/30 

Transaction  No.  88  March  5,  19    . 

Sold  to  J.  T.  Ludlow,  Boston,  Mass. 
300  yds.  Golf  Cloth  at  $2.00  $600 

Terms  2/10,  n/30 

Transaction  No.  89  March  5,  19    .     K 

Paid  by  check  #32,  Reynolds  &  Co.,  $2,000,  invoice 
Jan.  14. 

Transaction  No.  90  March  5,  19    . 

Paid  by   check   #33,  N.  Y.   Desk  Co.,  $60,   invoice 
Jan.  4. 

Transaction  No.  91  March  5,  19    . 

Received  invoice  from  Jackson  Mills,  Scranton,  Pa., 
for  merchandise  purchased: 
1200  yds.  Serge  at  $1.50  $1,800 

1000    "      Fancy  Suitings       "      1.25  1,250     $3,050 


Terms  2/10,  n/30 

Transaction  No.  92  March  5,  19    . 

Received  invoice  from  John  Slater,  for  printed  mat- 
ter, $20. 

Transaction  No.  93  March  9,  19    . 

Paid  by  check  #34,  Consolidated  Gas  Co.,  for  Feb. 
service,  $10.50. 


/ 


169 


Transaction  No.  94  March  9,  19    .    . 

Received  note  from  Miller  &  Co.  dated  March  i  due 
in  30  days,  in  amount  $1,005,  in  settlement  of  invoice 
dated  Feb.  i,  $1,000  and  interest  $5.00. 

Transaction  No.  95  March  9,  19 

Received  check  from  James  T.  Ludlow,  in  amount  $882^ 
in  payment  of  account,  $900  less  2%  discount  $18. 

Transaction  No.  96  March  9,  19    . 

Paid  by  check  #35,  N.  Y.  Telephone  Co.,  $14,  for  tele- 
phone service. 

Iransaction  No.  97  March  11,  19    . 

Paid  by  check  #36,  Taylor  Mfg.  Co.,  $5,980,  invoice 
Jan.  19. 

Transaction  No.  98  March  11,  19    .     , 

Received  note  from  Cann  &  Co.,  in  amount  $400,  dated 
March  10,  due  in  one  month  with  interest  at  6%,  in  settle- 
ment of  invoice  Feb.  11,  19    . 

Transaction  No.  99  March  11,  19    . 

Bell  &  Co.  request  payment  of  their  invoice  dated  Feb. 
4,  in  amount  $3,700.  Not  having  sufficient  cash  with 
which  to  pay  them,  Mr.  Reid  discounts  at  the  bank  his 
60-day  note  for  $5,000.    Discount  rate  6%. 


Transaction  No.  100 

Paid  by  check  #37,  Bell  &  Co. 
Feb.  4. 

Transaction  No.  loi 

Paid  out  of  petty  cash: 
Telegram 
Dinner  for  clerk 
Towel  service 


March  11,  19 


7 


$  .70 

125 
2.25 


Home  Work: 


Fill  out  check  stubs  for  March  transactions  106, 
109,  no,  121,  122,  123,  and  124. 


ASSIGNMENT    VIII 


171 


41. 


I  ■ 


I 


It 


I 


I 


If 


Outline : 


ASSIGNMENT  VIII 


Enter  March  transactions  numbered  102  to  125  inclu- 
sive. 

Note:    This  work  is  to  be  done  in  class  under  the 
guidance  of  the  instructor. 

STATEMENT   OF   TRANSACTIONS 
MARCH   TRANSACTIONS 
The  transactions  from  March  12  to  March  31  were  as  fol- 


lows: 


Transaction  No.  102  March  i?    10 

Received  check  from  Marshall  &  Co.,  in  amount  $1,568,' 
in  payment  of  invoice  March  5,  $1,600  less  2%  cash  dis- 
count $^2. 

Transaction  No.  103  March  15,  19    . 

Left  note  of  W.  Hall,  in  amount  $500,  due  March  19, 
with  bank  for  collection.    Make  no  entry. 

Transaction  No.  104  March  15,  19    . 

Received  invoice  from  Eclipse  Mills,  Altoona,  Pa.,  for 
merchandise  purchased. 

1000  yds.  Golf  Cloth  at  $1.50  $1,500 

1000    "     Flannel  "     1,10  1,100     $2,600 


/ 


Special  terms  5%  cash. 

Transaction  No.  105  March  15,  19    .    , 

Received  invoice  from  Reynolds  &  Co.,  Passaic,  N.  J., 
for  merchandise  purchased: 
500  yds.  Broadcloth  at  $3.20  $1,600 

Terms  2/10,  n/30 

Transaction  No.  106  March  15,  19    . 

Paid   by   check    #38,   Eclipse   Mills,   $2470,   invoice 
March  15,  $2,600  less  5%  cash  discount  $130. 


Transaction  No.  107  March  15,  19 
Sold  Dublin  &  Co.,  Chicago,  111. 
500  yds.  Cloakings                 at  $2.25  $1,125 

200    "     Golf  Cloth  "     2.20  440 

200    "     Fancy  Suitings         "      1.90  380     $1,945 


Terms  2/10,  n/30 

Transaction  No.  108  March  15,  19 

Sold  to  Cann  &  Co.,  Brooklyn,  N.  Y. 
250  yds.  Cloakings  at  $2.00  $500 

Terms  2/10,  n/30 

Transaction  No.  109  March  15,  19    . 

Paid  by  check  #39,  N.  Y.  Edison  Co.,  $17.25,  service 
for  February. 

Transaction  No.  no  March  15,  19    .' 

Drew  check  #40,  for  petty  cash,  $25. 


Transaction  No.  in 

Sold  to  L.  Crane,  City. 
200  yds.  Melton 
400    "     Broadcloth 

Terms  2/10,  n/30  • 


at  $3.25 


it 


4.00 


March  18,  19    . 

$650 

1,600     $2,250 


Transaction  No.  112  March  18,  19    . 

Sold  to  Marshall  &  Co.,  New  Haven. 
500  yds.  Flannel  at  $1.50  $750 


300 


« 


Melton 


« 


325 


975     $1,725 


Terms  2/10,  n/30 


Transaction  No.  113  March  18,  19    . 

Sold  to  James  T.  Ludlow,  Boston,  Mass. 
200  yds.  Melton  at  $3.25  $650 


100 


(« 


Broadcloth 


M 


4.00 


400        $1,050 


Terms  2/10,  n/30 


170 


'I 


r, 


172 


BOOKKEEPING,   THEORY  AND   PRACTICE 


*! 


u 


!/ 


Transaction  No.  114 

Paid  out  of  petty  cash : 
For  postage  stamps 
Cleaning  windows 


March  20,  19 

$10.00 
2.00 


Transaction  No.  115  March  20,  19    . 

Received  invoice  from  Bell  &  Co.,  Passaic,  N.  J.,  f 
merchandise  purchased. 

1000  yds.  Cloakings  at  $1.50  $1,500 

Terms  2/10,  n/30 


Transaction  No.  116  March  20,  19    . 

Received  invoice  from  Baldwin  Mfg.  Co.,  Altoona,  Pa., 
for  merchandise  purchased: 
600  yds.  Melton  at  $2.50  $1,500 

Terms  2/10,  n/30 


1^ 


Transaction  No.  117  March  22,  19    . 

Sold  to  Tompkins  &  Co.,  Philadelphia,  Pa. 
1000  yds.  Serge  at  $2.00  $2,000 

500    "     Flannels  "      1.50  750     $2,750 


1/ 


Terms  2/10,  n/30 

Transaction  No.  118  March  22,  19    .     Cx^ 

Sold  (for  cash  on  delivery)  C.  O.  D.  to  Modern  Tailor- 
ing Co.,  City. 

100  yds.  Cloakings  at  $2.00  $200 

Terms  2%  cash. 
See  transaction  No.  120. 


Transaction  No.  119  March  22,  19 

Received  notice  from  bank  that  W.  Hall's  note  due 
March  19  was  paid  and  that  our  account  has  been  cred- 
ited. (Note  of  March  4,  for  $500  due  in  15  days  with 
interest  at  6%.) 


/ 


Transaction  No.  120  March  22,  lo 

Received  check  from  Modern  Tailoring  Co.,  C.  O.  D. 
customer,  for  $196,  invoice  March  22,  $200  less  discount 
$4.00. 


y 


ASSIGNMENT     VIII 


173 


Transaction  No.  121  March  25,  19 

Paid  by  check  #41,  H.  Jenkins,  $80,  travelling  ex- 
penses. 

Transaction  No.  122  March  30,  19    . 

Paid  by  check  #42,  salaries,  $430,  made  up  as  follows 

Mr.  Reid  $200.00 
Bookkeeper — March   $110  plus    four 

days  in  February  126.67 
Clerk — March  $90  plus  four  days  in 

February  103.33 

Transaction  No.  123  March  30,  19     . 

Paid  by  check  #43,  H.  Jenkins,  $175,  salary  for  March. 

Transaction  No.  124  March  30,  19     . 

Paid  by  check  #44,  Dry  Goods  Journal,  $40,  adver- 
tising for  March. 
Transaction  No.  125  March  30,  19     . 

Left  note  of  Cann  &  Co.,  Brooklyn,  due  March  31, 
with  bank  for  collection.     Make  no  entry. 


Home  Work: 


(i)     Post  March  Transactions. 

Note:     In  posting  the  March  transactions,  post 

from  the  books  of  original  entry  in  the 

following  order: 

(i)     Sales  Journal. 

(2)  Purchase  Journal. 

(3)  Journal. 

(4)  Cash  Journal. 

(5)  Petty  Cash  Journal. 
(2)     Take  a  trial  balance. 


it 


ASSIGNMENT     IX 


ASSIGNMENT  IX 

Note:    Books  are  not  closed  at  Mar.  31,  19 

(i)     Prepare  a  six-column  statement  at  March  31,  19    ,  show- 
ing the  profit  for  the  month  of  March. 

(2)  Prepare  Profit  &  Loss  Account. 

(3)  Prepare  Balance  Sheet. 

The  inventories  at  March  31,  19    ,  were  as  follows: 
(a)     Merchandise 

325  yds.  Serge  at  $1.60  $520 

^^    "         "  "      1.50  1,800     $2,320 


it 


1000 
380    " 


Flannels 


<i 


1000    "     Fancy  Suitings 
630    " 


tt 


tt 


2200  " 

1475  " 

600  " 

400  " 

1000  " 

600  " 


Cloakings 

Broadcloth 

Melton 


(« 


Golf  Cloth 
«        tt 


M 
« 

it 
tt 

tt 
tt 
tt 
tt 

II 


1. 10 
1.20 

1.30 

1.50 
3.20 

2.50 
2.60 

1.50 
1.60 


1,100 


1.556 


1,250 
819         2,069 


1,500 
1,040 

1,500 
960 


3*300 

4»72o 
2,540 


2,460 


Total  Merchandise  Inventory        $18,965 

(b)  Stationery  &  Printing  j^ 

(c)  Insurance  (11  months  at  $20)  220 

STATEMENT    OF    TRANSACTIONS 
APRIL  TRANSACTIONS 

Anticipating  a  large  increase  in  the  nimiber  of  customers  and 
creditors  and  realizing  that  such  increase  will  necessitate  a 
division  of  the  work  in  connection  with  keeping  the  books,  the 


174 


175 


bookkeeper  decides  to  install  a  separate  ledger  for  customers 
and  a  separate  ledger  for  creditors.  At  the  same  time,  he  wishes 
to  keep  control  over  these  subsidiary  ledgers  so  that  he  need 
not  refer  to  them  in  taking  a  trial  balance.  He  establishes, 
therefore,  on  the  "General  Ledger"  a  "Customers'  Controlling 
Account"  (page  3A)  to  which  he  closes  out  all  the  customers' 
accounts  and  transfers  them  to  the  "Customers'  Ledger."  He 
likewise  establishes  a  "Creditors'  Controlling  Account"  (page 
7A)  to  which  he  closes  out  all  the  creditors'  accounts  and  trans- 
fers them  to  the  "Creditors'  Ledger." 
The  accounts  and  amounts  to  be  transferred  are  as  follows: 
(a)    Customers : 

Cann  &  Co. 

J.  Link 

L.  Crane 

I.  Hughes 

Dublin  &  Co. 

J.  T.  Ludlow 

T.  Wilson  &  Co. 

Marshall  &  Co. 

Tompkins  &  Co. 

W.  Bradhurst 

Potash  &  Perlmutter 


$500.00 

437.50 
2,250.00 

1,37500 

1,94500 

1,650.00 

1,300.00 

1,72500 

2,750.00 

1,000.00 

1,100.00 


(b)     Creditors : 
J.  Slater 
Bell  &  Co. 
Baldwin  Mfg.  Co. 
Reynolds  &  Co. 
Taylor  Mfg.  Co. 
Brewster  &  Co. 
Jackson  Mills 


$16,032.50 

$20.00 
1,500.00 
6,900.00 
1,600.00 
3420.00 

240.00 
3,050.00 

$16,730.00 


Make  the  necessary  journal  entries  to  transfer  these  accounts 
to  separate  ledgers.  Post  the  entries.  Open  the  following  ac- 
counts : 

(i)     In  (General  Ledger: 

3A.    Customers'  Controlling  Account. 
7A.    Creditors'  Controlling  Account. 


176 


BOOKKEEPING,  THEORY  AND   PRACTICE 


;i 


(2)     In  Customers'  Ledger: 

lA. 

Cann  &  Co. 

iB. 

J.  Link 

2A. 

L.  Crane 

2B. 

I.  Hughes 

3A. 

Dublin  &  Co. 

3B. 

Jas.  T.  Ludlow 

4A. 

T.  Wilson  &  Co. 

4B. 

Marshall  &  Co. 

5A. 

Tompkins  &  Co. 

5B. 

W.  Bradhurst 

6A. 

Potash  &  Perlmutter 

(3)     In  Creditors'  Ledger: 

lA. 

J.  Slater 

iB. 

Bell  &  Co. 

2A. 

Baldwin  Mfg.  Co. 

2B. 

Reynolds  &  Co. 

3A. 

Taylor  Mfg.  Co. 

3B. 

Brewster  &  Co. 

4A. 

Jackson  Mills 

Home  Work: 

Fill  out  check  stubs  for  April  transactions  num- 
bered 126,  127,  147,  151,  152,  153,  156,  and  161. 
Write  note  covering  transaction  No.  147. 


ASSIGNMENT   X 

Outline : 

Enter  April  transactions  numbered   126  to   162  inclu- 
sive. 
Note:     Purchase  and  sales  transactions  are  to  be  re- 
corded by   the   students   outside  of  class;  all 
other  transactions  are  to  be  recorded  by  the 
students  in  class  under  the  guidance   of  the 
instructor. 
For  the  purpose  of  brevity  omit  details  of  invoices  in 
recording  sales  transactions. 

STATEMENT   OF   TRANSACTIONS 
APRIL   TRANSACTIONS 

Note:    In  all  books  of  original  entry  except  the  petty  cash 
book,  start  on  the  next  page. 


1 


I 


New  Accounts  to  be  Opened: 

(a) 

In  General  Ledger: 

4B.     Liberty  Bonds 

5B.    Auto  Truck 

6A.    Checks  Cashed 

8B.    A.  Reid  Drawing  Account 

13B.    Auto  Expense 

(b) 

In  Customers'  Ledger: 

6B.    Miller  &  Co. 

7A.    C.  0.  D. 

7B.    W.  Hall. 

8A.     Stewart  &  Myers 

3B.    Modern  Tailoring  Co. 

(c) 

In  Creditors'  Ledger: 

• 

4B.     Remington  Typewriter  Co 

5A.     Eclipse  Mills 

5B.    Tower  Mfg.  Co. 

6A.    N.  Y.  Desk  Co. 

6B.    Wilcox  Motor  Truck  Co. 

7A.    Auto  Supply  Co. 

177 


12 


II 


178  BOOKKEEPING,  THEORY  AND   PRACTICE 

The  transactions  from  April  i  to  15  were  as  follows : 

Transacfon  No.  126  ^pril  i.  19  ^ 

Paid  by  check  #45,  Jay   Realty  Co.,  $200,  renflor 
April. 

Transaction  No.  127  am  .  / 

for  Marth  *'*^'  ^"'*'''  ^''"''"^  ^°'  ^'°°'  "^"^^^ 

Transaction  No.  128  ^pril  i.  19 

Note  of  Miller  &  Co.  dated  March  i.  19  ,  due  in  \o 
days,  in  amount  $1,005,  reported  by  the  bank  as  having 
been  paid.  ^ 

Transaction  N».  129  ^p^;,  ^     ' 

NoM-of  Mr  Reid,  in  amount  $4,800,  given  to  Reynolds 
&  Co.,  dated  March  2,  due  in  one  month  with  interest  at 
6%,  presented  to  the  Wall  Street  Trust  Co.  and  paid. 

Transaction  No.  130       "  April  2,  ,9    . 

The  bookkeeper  calls  Mr.  Reid's  attention  to  the  small 
bank  balance.     Mr.  Reid  endeavors  to  discount  at  the 
bank  his  note  for  $2,000  but  is  not  successful.    The  bank 
however,  agrees  to  discount  his  customers'  notes 

He  therefore  discounts  at  6%  note  of  Cann  &  Co.  dated 
March  II,  m  amount  $400,  due  in  one  month  with  interest 
at  6%. 

Transaction  No.  ix\  a     ., 

T>  .       .  April  2,  19    . 

Being  in  need  of  funds,  Mr.  Reid  instructs  the  book- 
keeper to  draw  at  sight,  through  the  Wall  Street  Trust 
Co.  for  collection,  on  all  customers  owing  February  in- 
voices. The  bookkeeper  draws  at  sight  on  the  following 
customers :  ^ 


$437-50 — invoice  Feb.  28 
i»37500 — invoice  Feb.  21 


J.  Link,  City 
I.  Hughes,  City 
T.  Wilson  &  Co., 
Bridgeport,  Conn.      1,300.00— invoice  Feb.  9 
Transaction  No.  irz  a     -i 

Received  invoice  from  Remington  Typewriter  Co,  for 
combination  typewriter  and   billing  machine  $150 
Terms  n/30 


ASSIGNMENT    X 


179 


Transaction  No.  133  April  3,  19    . 

Received  check  from  Tompkins  &  Co.,  Phila.,  in 
amount  $2,695,  invoice  March  22,  $2,750  less  2%  cash 
discount  $55. 

Transaction  No.  134  April  3,  19    . 

Sold  to  Marshall  &  Co.,  New  Haven,  Conn. 
500  yds.  Broadcloth  at  $4.00  $2,000 

200    "      Melton  "     3.25  650     $2,650 


Terms  2/10,  n/30 

Transaction  No.  135 

Sold  to  Miller  &  Co.,  Albany,  N.  Y. 
500  yds.  Cloakings  at  $2.00 

100    "     Broadcloth  "     4.00 

Special  terms  5%  for  cash. 


Transaction  No.  136  April  3,  19     . 

Sold  to  King  &  Co.,  Jacksonville,  Fla. 
250  yds.  Broadcloth  at  $4.00  $1,000 


April  3,  19     . 

$1,000 

400     $1400 


400 


n 


Flannel 


(( 


1.50 


600     $1,600 


Terms  2%  Sight  Draft,  Bill  of  Lading  attached. 
Debit  C.  O.  D.  Account. 

Transaction  No.  137  April  3,  19    . 

Left  sight  draft,  in  amount  $1,568,  with  B/L  attached, 
on  King  &  Co.,  with  Wall  Street  Trust  Co.  for  collection. 
Make  no  entry. 

Transaction  No.  138  April  4,  19    . 

Bank  reports  sight  draft  on  L  Hughes  $1,375  ^^^  T. 
Wilson  &  Co.  $1,300  paid,  and  returns  unpaid  draft  on 
J.  Link  with  notation  "will  remit  direct." 

See  transaction  No.  131. 


i8o 


II 


V 


I 


BOOKKEEPING,   THEORY  AND   PRACTICE 


Transaction  No.  139  . 

Received  invoice  from  Eclipse  Mills,  Altoona!'pa     for 
merchandise  purchased  •  ' 

800  yds.   Broadcloth  at  $3.00  $;,,4oo 

Terms  2%  subject  to  draft  payable  in  10  days 

See  transaction  No.  140. 

Transaction  No.  140  .     ., 

Accepted  (payable  at  Wall  Street  Trust^Co  M^raft  of 
Echpse  M,lls  dated  April  2,  payable  ,0  days  after  sLt 
m  amount  $2,352,  (invoice  April  4,  $2400  less  2%  W 

Transaction  No.  141 

^^Received  invoice  from  Tower  Mfg.  Co.,  for  statlone;y. 

Transaction  No.  142  .     .. 

Received  invoice  from  N.  Y    Desk  Cn  ^flr^^  '?    *  ^ 
chair,  $40.  ^^"  ^"""^  ^^^^  ^"^ 

Transaction  No.  143  . 

Received  check  from  Miller  &  Co..  in  amount  ^  3,0 
m^payment  of  invoice  April  3.  $1400  less  5%  dilS 


Transaction  No.  144 

Sold  for  cash: 
50  yds.  Serge 

less  2% 


April  8,  19    . 


at  $2.00 


$100 
2 


$98 


■  Transaction  No.  145  .      . 

Had  pass-book  balanced  at  the  bank  and  received^state- 
ment  showing  a  balance  of  $4,733  57 
The  bank  has  allowed  $7.16  interest  on  deposits    has 

heTnSr  '7  ""r'°"'  ^"'  ''^^  returned'  canceJed 
^ecks  numbered  25,  26,  and  28  to  42  inclusive,  except 

Transaction  No.  146  AIR 

Received  check  dated  April  20  from  J.  t"  Ludlow   in 
amount  $600,  in  payment  of  invoice  datld  March  5 


ASSIGNMENT    X 


181 


Transaction  No.  147  April  10,  19     . 

Purchased   light   delivery   truck   from   Wilcox   Motor 
Truck  Co.,  in  amount  $1,200,  freight  $50,  payable  $650 
in  cash  and  balance  in  interest  bearing  notes  as  follows : 
Dated  April  10,  due  in  i  mo.,  interest  6%— i$ioo 


ID, 
ID, 
10, 
ID, 
10, 


(( 


it 


t( 


tt 


it 


2 

3 

4 

5 
6 


(( 


« 


(( 


tt 


t( 


h —  100 
^ —  100 
^ —   100 

^ —  100 
^ —  100 


Notes  were  made  payable  at  Wall  Street  Trust  Co. 
Drew  check  #47  for  $650.     Engaged  chauffeur  at  $80 
per  month. 


Transaction  No.  148 

Sold  to  I.  Hughes,  City. 
300  yds.  Fancy  Suitings         at  $1.75 


200 


(( 


Serge 


it 


2.00 


April  12,  19    . 

$525 
400        $925 


Terms  2/10,  n/30 

Transaction  No.  149  April  12,  19    . 

Sold  to  T.  Wilson  &  Co.,  Bridgeport,  Conn. 
250  yds.  Golf  Cloth  at  $2.00  $500 

Terms  2%  subject  to  acceptance  of  draft,  payable  10 
days  after  date. 

See  transaction  No.  150. 

Transaction  No.  150  April  12,  19     . 

Drew  on  T.  Wilson  &  Co.,  Bridgeport,  Conn.,  at  10 
days  after  date  for  $490  (invoice  April  12— ^$500  less 
2%).     Draft  was  accepted  April  13  and  returned  to  us. 

Left  draft  with  bank  for  collection.     Make  no  entry. 

Transaction  No.  151  April  13,  19    . 

Paid  by  check  #48,  Brewster  &  Co.,  $240,  invoice 
March  i. 

Transaction  No.  152  April  13,  19    . 

Paid  by  check  #49,  Baldwin  Mfg.  Co.,  $5,400,  invoice 
Feb.  18,  19     . 


l82 


BOOKKEEPING,   THEORY   AND   PRACTICE 


ASSIGNMENT    X 


183 


Transaction  No.  153  April  13,  19    . 

Paid  by  check  #50,  Consolidated  Gas  Co.,  $9.50,  for 
March  service. 

Transaction  No.  154  April  13,  19    . 

Received  notice  from  bank  that  sight  draft  on  King 
&  Co.,  in  amount  $1,568   (invoice  April  3,  $1,600,  less 
discoimt  $32),  has  been  paid. 
See  transaction  No.  136. 


Transaction  No.  155 

Paid  out  of  petty  cash: 
For  Gasoline 

Window  cleaning 
Towel  service 


tt 


H 


April  13,  19 

$3.90 
2.00 
2.25 


I 


Transaction  No.  156  April  15,  19 

Paid  by  check  #51,  "Modern  Garage,"  rent  of* auto  for 
April,  $16  (2/3  of  a  month  at  $24  per  month). 

Transaction  No.  157  April  15,  19    . 

Received  check  from  Marshall  &  Co.,  in  amount  $4,322, 
in  payment  of  invoice  March  18,  $1,725,  and  April  3, 
$2,650,  less  2%  cash  discount  $53. 

Transaction  No.  158  April  15,  19    . 

Reynolds  &  Co.  request  payment  of  invoice  in  amount 
$1,600,  dated  March  15.  Mr.  Reid  draws  on  Dublin  & 
Co.  (who  owe  invoice  of  March  15,  $1,945)  at  sight, 
requesting  them  to  accept  the  draft  and  forward  same 
to  Reynolds  &  Co.,  Passaic,  N.  J.  The  draft,  in  amount 
$1,600,  is  accepted. 

Transaction  No.  159.  April  15,  19    . 

Sold  C.  O.  D.  to  Modem  Tailoring  Co. 
50  yds.  Melton  at  $3.25  $162.50 

Terms  Cash  less  2%.  Debit  C  O.  D.  Account. 

See  transaction  No.  160. 

Transaction  No,  160  April  15    10 

Received  from  Modern  Tailoring  Co.,  C.  O.  D.  cus- 
tomer, check  for  $159.25  in  payment  of  invoice  of  even, 
date,  $162.50  less  2%  cash  discount  $3.25. 


Transaction  No.  161  April  15,  19     . 

Paid  by  check  #52,  Bell  &  Co.,  $1470,  invoice  of 
March  20  ($1,500  less  2%  cash  discount  $30).  Note  that 
their  terms  are  2/10,  n/30. 

Transaction  No.  162  April  15,  19     . 

Draft  of  Eclipse  Mills  dated  April  2,  payable  in  10 
days  after  sight,  in  amount  $2,352,  and  accepted  by  us 
on  April  4,  presented  to  the  Wall  Street  Trust  Co.  and 
paid. 

See  transaction  No.  140. 


Home  Work : 


(i)     Enter  in  the  Purchase  Journal  transactions 
numbered  132,   139,  141,  142,  and  147. 

(2)  Enter     in    the    Sales    Jotu^nal    transactions 

numbered    134,    135,    136,    148,    149,    and 

159- 

(3)  Fill  out  check  stubs  for  April  transactions 

numbered    163,    167,    171,    173,    181,    182, 
188,  189,  190,  191,  and  192. 


II 


I 


ry    I 


ASSIGNMENT   XI 
Outline: 

Enter  April  transactions  numbered   163  to  101;  inclu- 
sive. 

Note:  Purchase  and  sales  transactions  are  to  be  re- 
corded by  the  students  outside  of  class;  all 
other  transactions  are  to  be  recorded  by  the 
students  in  class  under  the  guidance  of  the 
instructor.  For  the  purpose  of  brevity  omit 
details  of  invoices  in  recording  sales  transac- 
tions. 

STATEMENT   OF   TRANSACTIONS 

APRIL   TRANSACTIONS 

the  transactions  from  April  16  to  30  were  as  follows : 

Transaction  No.  16^  a     -i    ^ 

T>  •  J  .       ,  •'  ,  April  16,  19    . 

Paid  by  check  #53,  Wall  Street  Trust  Co..  $2,000,  for 
two  $1,000  Third  Liberty  Loan  Bonds  purchased.    One 
bond  IS  to  be  carried  as  an  investment  by  the  business; 
the  other  is  a  personal  investment  of  Mr.  Reid's     Mr 
Reid^instructs  the  bookkeeper  to  open  a  drawing  account 

Transaction  No.  164  April  17,  19    . 

Received  notice  from  bank  that  check  of  Modem 
lailonng  Co.,  in  amount  $159.25,  has  been  protested,  and 
that  our  account  has  been  charged  $160.54,  covering 
check  $159.25  and  protest  fees  $1.29.  The  discount 
allowed  at  time  of  payment  was  $3.25.  See  transactions 
numbered  159  and  160. 

Transaction  No.  le";  a     •• 

Bell  &  Co    return  our  check  #52,  in  amount  $1,470 
and  request  check  for  the  full  amount  as  discount  period 
has  expired.    Note  that  invoice  will  not  be  paid  at  pres- 
ent   Amount  of  invoice  $1,500,  discount  deducted  $30 
bee  transaction  No.   161. 

Transaction  No.  166  A     I 

K  ^^  ^u'^!T'  *""'  P"'°"^'  "^^^^^  '"  «'"°""t  S,  clashed 
by  the  bookkeeper  out  of  petty  cash. 

184 


ASSIGNMENT    XI  o 

Transaction  No.  167  ^pril  18,  19 

Drew  check  #54,  in  amount  $25,  for  petty  cash.   ' 

Transaction  No.  168  a„,., 

n         •        1  April    19     IQ 

Received  note  from  Potash  &  Perlmutter  dated  Aoril 
4,  in  amount  $1,100,  due  in  60  days  with  interest  at  6% 
in  settlement  of  invoice  dated  March  4,  19    . 

Transaction  No.  160  *     -i 

T,      ■      .  r  April  20,  19    . 

Received  note  from  J.  T.  Ludlow  dated  April  i8   in 
amount  $1,050,  due  in  one  month  with  interest  at  c% 
in  settlement  of  invoice  dated  March  4,  19    . 

Transaction  No.  170  April  20.  19    . 

Deposited  check  for  $600  dated  April  20,  received  on 

March  ^"        ^"'"'"^  '"  ^""^""^^  °*  '"^°'"=^  -^^'^ 

Transaction  No.  171  April  22,  19    . 

Paid  by  check  #55,  N.  Y.  Edison  Co.,  $i6,  for  March 

service* 

Transaction  No.  172  ^pril  23,  19 

Received  notice  from  bank  that  draft  on  T.  Wilson  & 
Co.,  in  amount  $490,  drawn  by  us  on  April  12  and 
accepted  by  them  April  13,  has  been  paid.  See  trans- 
actions numbered  149  and  150. 

Transaction  No.  173  ^pril  23,  19    . 

Received  request  from  N.  Y.  Edison  Co.  for  payment 
of  their  invoice  dated  March  15  for  February  service. 
Mr.  Reid  informs  them  over  telephone  that  the  invoice 
in  question  was  paid  by  his  check  #39  dated  March  ic 
in  amount  $17.25  and  payable  at  the  Wall  Street  Trust 
Co.  The  payee  did  not  receive  the  check.  Mr  Reid 
requests  the  bank,  over  the  telephone,  to  stop  payment 
on  the  check  and  confirms  the  request  in  writing 

Drew  check  #56  to  the  order  of  N.  Y.  Edison  Co  for 
$17.25  covering  February  service. 

See  transaction  No.  109. 


i86 


BOOKKEEPING,   THEORY   AND   PRACTICE 


li 


♦I 


Transaction  No.  174  April  23,  19    . 

Sold  to  Cann  &  Co.,  Brooklyn,  N.  Y. 
ICO  yds.  Serge  at  $2.00         $200.00 

150    "      Fancy  Suitings        "      1.75  262.50   $462.50 


Terms  2/10,  n/30 

Transaction  No.  175 

Sold  to  L.  Crane,  City. 
500  yds.  Cloakings  at  $2.00 

Terms  2/10,  n/30 

Transaction  No.  176 

Sold  Miller  &  Co.,  Albany,  N.  Y. 
300  yds.  Gold  Qoth  at  $2.00 


100 


u 


Melton 


ft 


3.25 


April  23, 

19    . 

$1,000 

$1,000 

April  23, 

19    . 

$600 

325 

$925 

Terms  2/10,  n/30 


Transaction  No.  177  April  23,  19    . 
Sold  to  Dublin  &  Co.,  Chicago,  111. 
.400  yds.  Broadcloth                at  $4.25  $1,700 

250    "     Serge  "     2.20  550     $2,250 


Terms  2/10,  n/30 

Transaction  No.  178  April  23,  19 

Sold  to  W.  Hall  &  Co.,  Mt.  Vernon,  N.  Y.  ' 

200  yds.  Flannel  at  $1.50             $300        $300 
Terms  2/10,  n/30 

Transaction  No.  179  April  23,  19    . 

Sold  to  Stewart  &  Myers,  Syracuse,  N.  Y. 

300  yds.  Flannel  at  $1.50             $450 


200 


Melton 


M 


4.00 


800  $1,250 


Terms  2/10,  n/30 


Transaction  No.  180  April  23,  19 

Received  notice  to  attend  a  meeting  of  the  creditors 
of  the  Modem  Tailoring  Co. 


ASSIGNMENT    XI 


187 


Transaction  No.  181  April  23,  19 

Received  invoice  from  "Bradstreet's"  mercantile  agency 
for  year's  subscription  $150.     Paid  by  check  #57. 

Transaction  No.  182  April  23,  19 

With  Mr.  Reid*s  consent,  the  bookkeeper  pays  his  (the 
bookkeeper's)  insurance  premium  by  check  of  the  firm 
m  amount  $75.00  in  exchange  for  currency  which  is  de- 
posited in  the  bank. 

Drew  check  #58  to  order  of  J.  Smith,  bookkeeper, 
in  amount  $75.00. 

Transaction  No.  183  April  25,  19    . 

Gave  Taylor  Mfg.  Co.  note  dated  April  26,  due  in  2 
months,  in  amount  $347i-30»  in  payment  of  invoice  Feb. 
26,  $3420  and  interest  from  March  26  to  June  26  (3 
months)  at  6%,  $51.30. 

Transaction  No.  184  April  25,  19 

Received  invoice  from  Bell  &  Co.,  Passaic,  N.  J.,  for 
merchandise  purchased: 

500  yds.  Serge                         at  $1.60  $800 

500    "      Flannel                      "      1.20  600     $1400 


Terms  2/10,  n/30 

Transaction  No.  185  April  25,  19 

Received  invoice  from  Reynolds  &  Co.,  Passaic,  N.  J., 
for  merchandise  purchased: 

750  yds.  Fancy  Suitings        at  $1.25  $937-50 

Terms  2/10,  n/30 

Transaction  No.  186  April  25,  19 

Received   invoice   from   Eclipse  Mills,   Scranton,   Pa., 
for  merchandise  purchased: 
1000  yds.  Cloakings  at  $1.40  $1400 

500    "     Golf  Cloth  "     1.50  750     $2,150 


Terms  2/10,  n/30 


i 


I 


I 


■ill 


N 


!. 


l88  BOOKKEEPING,   THEORY  AND   PRACTICE 

Transaction  No.  187  April  25,  19 

Received    invoice    from    Taylor    Mfg.    Co.,    Paterson, 
JN.  J.,  for  merchandise  purchased: 
250  yds.  Melton  at  $2.50  $62^ 

Terms  S/D.     B/L  attached. 

Taylor  Mfg.  Co.  notified  Mr.  Reid  that  they  were  draw- 
ing on  him  at  sight  for  $612.50  (invoice  of  even  date 
$625  less  2%  cash  discount  $12.50)  with  B/L  attached 
See  transaction  No.  188. 

Transaction  No.  188  April  25,  19 

Paid  by  certified  check  #59  (drawn  to  the  order  of 
University  National  Bank)  draft  of  Taylor  Mfg  Co  in 
amount  $612.50. 

Transaction  No.  189  April  25,  19 

Paid  by  check  #60,  N.  Y.  Telephone  Co.,  $15,  for  tele- 
phone service. 

Transaction  No.  190  April  25,  19 

Paid  by  check  #61,  in  amount  $45333,  salaries  as  fol- 
lows: 

Bookkeeper  $110.00 

Clerk 

^*^^*^  90.00 

Mr.  Reid  ^oo.oo 

Chauffeur,  2/3  of  a  month 

^^  ^  53.33 


$453-33 

Transaction  No.  191  April  30,  19 

Paid  by  check  #62,  H.  Jenkins,  salesman,  $235,  salary 
for  month  $175,  travelling  expenses  $60. 

Transaction  No.  192  April  30,  19 

Paid  by  check  #63,  Dry  Goods  Journal,  $40,  for  April 
advertisements. 

Transaction  No.  193  April  30,  19 

Received  invoice  from  Auto  Supply  Co.,  in  amount  $25, 
for  auto  supplies. 
Debit— Auto  Expense. 


Home  Work: 


(5) 


ASSIGNMENT    XI 


189 


(1)  Enter  in  the  Purchase  Journal  transactions 

numbered  184,  185,  186,  187,  and  193. 

(2)  Enter  m    the    Sales    Journal    transactions 

nmnbered    174,    175,    176,    177,    ,78,   and 

(3)  Post. 

(4)  Take  a  trial  balance. 
Prepare  the  following  schedules : 

(a)  Customers'  balances. 

(b)  Creditors'  balances. 


lit 


f 


i4' 


\t 


ASSIGNMENT  XII 

Close  the  books  at  April  30,  19    ,  and  prepare  a  balance  sheet. 
Note :    This  work  is  to  be  done  in  class  under  the  guidance 
of  the  instructor. 

APRIL  CLOSING 
The  inventories  at  April  30,  19    ,  were  as  follows : 
925  yds.  Serge  at  $1.50    $1,487.50 

5^    "         "  "      1.60         800.00    $2,287.50 


100 

880 

Flannels 

Fancy  Suitings 

Goakings 

"     Broadcloth 

<         ft                       f 

*     Melton 
'     Golf  Cloth 

"      1. 10 
"      1.20 

"      1.30 
"      1.25 

"      r.50 
"      r.40 

*  3.20 

*  300 

*  2.60 

*  2.50 

*  1.60 

*  1.50 

110.00 
1,056.00 

1,166.00 

630 
1300 

819.00 
1,625.00 

2,444.00 

1200 
1000 

1,800.00 
1,400.00 

3,200.00 

225    • 
800  * 

720.00 
2400.00 

3,120.00 

400    * 

300   ' 

1,040.00 
750.00 

1,790.00 

600   * 
950  ' 

960.00 
1425.00 

2,385.00 

Total  Merchandise  Inventory        $16,392.50 
Stationery  &  Printing  = 

Insurance  ( 10  months  at  $20)  ~ 


15.00 


200.00 


Home  Work: 


(I) 
(2) 

(3) 
(4) 


I' 


Post  closing  journal  entries. 

Balance  the  real  accounts. 

Take  a  trial  balance. 

Without  aid  from  the  instructor,  prepare  a 
six-column  statement  at    April    30,  19 
showing  the  profit  for  the  period. 

190 


ASSIGNMENT   XIII 

Outline  : 

Enter  May  transactions. 

Note:  Purchase  and  sales  transactions  are  to  be  re- 
corded by  the  students  outside  of  class;  all 
other  transactions  are  to  be  recorded  by  the 
students  in  class  under  the  guidance  of  the 
instructor. 

STATEMENT   OF   TRANSACTIONS 
MAY   TRANSACTIONS 

Mr.  Reid  requests  the  bookkeeper  to  open  accounts  which  will 
enable  him  in  the  future  to  tell  from  the  trial  balance  the  amount 
of  cash  discount  allowed  customers  and  the  amount  of  cash 
discount  deducted  in  paying  purchase  invoices. 

The  bookkeeper  accordingly  discontinues  the  use  of  the  In- 
terest and  Discount  Expense  and  the  Interest  and  Discount 
Earned  accounts,  and  opens  in  their  stead  the  following  ac- 
counts :  Cash  Discount  on  Sales,  Discounts  on  Notes.  Interest 
on  Notes  Payable,  Interest  on  Bank  Balances,  Interest  on  Notes 
Receivable,  and  Cash  Discount  on  Purchases. 

New  Accounts  to  be  Opened: 
In  General  Ledger: 
12A.     Expense. 


18A. 

19A. 

22A. 

22B. 

23A. 

24A. 

24B. 

25A. 


Cash  Discount  on  Sales. 
Discount  on  Notes. 
Freight  &  Express  Inward. 
Freight  and  Express  Out^-ard. 
Interest  on  Notes  Payable. 
Interest  on  Bank  Balances. 
Interest  on  Notes  Receivable. 
Cash  Discount  on  Purchases. 


In  Customers*  Ledger: 

9A.     Lawrence  Bros. 
9B.     Dawson  &  Co. 

In  Creditors*  Ledger: 

7B.    Lawrence  Bros. 


191 


i' 


ASSIGNMENT  XII 

Close  the  books  at  April  30,  19    ,  and  prepare  a  balance  sheet. 
Note:     This  work  is  to  be  done  in  class  under  the  guidance 
of  the  instructor. 

APRIL  CLOSING 

The  inventories  at  April  30,  19     ,  were  as  follows: 
525  yds.  Serge  at  $1.50    $1487.50 

500    "         "  «      1.60         800.00    $2,287.50 


fW 


100 
880 


630 
1300 


« 


<« 


(( 


« 


Flannels 


tt 


i.ro         110.00 

1.20      1,056.00      1,166.00 


Fancy  Suitings    "      1.30         819.00 

"  "      1.25       1,625.00      2,444.00 


1200    "      Cloakings 


1000 


« 


(( 


u 


225    "     Broadcloth 
800 


ti 


€t 


(i 


400    "     Melton 
300 


« 


« 


tt 
ft 

it 
t$ 

tt 
tt 


1.50  1,800.00 

1.40  1,400.00  3,200.00 


3.20  720.00 

3.00         2400.00  3,120.00 


2.60  1,040.00 


2.50 


750.00  1,790.00 


it 


600    "     Golf  Qoth 
950    " 


tt       tt 


"     1 .60        960.00 

"     1.50      142500      2,385.00 


Total  Merchandise  Inventory        $16,392.50 
Stationery  &  Printing  "" 

Insurance  ( 10  months  at  $20)  ~~ 


15.00 


200.00 


Home  Work: 


(I) 
(2) 

(3) 
(4) 


Post  closing  journal  entries. 

Balance  the  real  accounts. 

Take  a  trial  balance. 

Without  aid  from  the  instructor,  prepare  a 
six-column  statement  at  April  30,  19  , 
showing  the  profit  for  the  period. 


190 


: 


ii 


ASSIGNMENT   XIII 


Outline : 


Enter  May  transactions. 

Note:  Purchase  and  sales  transactions  are  to  be  re- 
corded by  the  students  outside  of  class ;  all 
other  transactions  are  to  be  recorded  by  the 
students  in  class  under  the  guidance  of  the 
instructor. 

STATEMENT    OF   TRANSACTIONS 
MAY   TRANSACTIONS 

Mr.  Reid  requests  the  bookkeeper  to  open  accounts  which  will 
enable  him  in  the  future  to  tell  from  the  trial  balance  the  amount 
of  cash  discount  allowed  customers  and  the  amount  of  cash 
discount  deducted  in  paying  purchase  invoices. 

The  bookkeeper  accordingly  discontinues  the  use  of  the  In- 
terest and  Discount  Expense  and  the  Interest  and  Discount 
Earned  accounts,  and  opens  in  their  stead  the  following  ac- 
counts: Cash  Discount  on  Sales,  Discounts  on  Notes,  Interest 
on  Notes  Payable,  Interest  on  Bank  Balances,  Interest  on  Notes 
Receivable,  and  Cash  Discount  on  Purchases. 

New  Accounts  to  be  Opened: 
In  General  Ledger: 
1 2  A.     Expense. 

18A.     Cash  Discount  on  Sales. 
19A.     Discount  on  Notes. 
22A.     Freight  Si  Express  Inward. 
22B.     Freight  and  Express  Outward. 
23A.     Interest  on  Notes  Payable. 
24A.     Interest  on  Bank  Balances. 
24B.     Interest  on  Notes  Receivable. 
25A.     Cash  Discount  on  Purchases. 

In  Customers'  Ledger: 

9A.     Lawrence  Bros. 
9B.    Dawson  &  Co. 

In  Creditors'  Ledger: 

7B.     Lawrence  Bros. 


191 


HBAMa 


r 


192 


BOOKKEEPING,   THEORY  AND   PRACTICE 


i 


jj 


*/ 


;,  I 


The  transactions  for  the  month  of  May  were  as  follows: 

Note:     Bring  forward  the  balance  of  cash  in  the  net  cash 
column. 

Transaction  No.  194  May  i,  19 

Discovered  error  in  extension  of  item  in  the  inventory. 
The  item  of  925  yds.  Serge  at  $1.50  $1,487.50 

should  be  1,387.50 


Difference 


100.00 


Make  the  necessary  entry  to  correct  this  error. 

Transaction  No.  195  May  i,  19    . 

Left  note  of  Jas.  T.  Ludlow  due  on  May  19,  with  bank 
for  collection. 
Make  no  entry. 

Transaction  No.  196  •       May  i,  19 

Paid  by  check  #64,  Modern  Garage,  $24,  May  rent  for 
auto. 

Transaction  No.  197  May  i,  19    . 

Paid  by  check   #65,  Jay  Realty   Co.,  $200,  rent   for 
May. 

Transaction  No.  198  May  i,  19    . 

Paid  by  check  #66,  Quick  Delivery  Co.,  $33.33,  cart- 
age for  ten  days  ended  April  10. 

Transaction  No.  199  May  2,  19    . 

Sold  Marshall  &  Co.,  New  Haven,  Conn. 
500  yds.  Cloakings  at  $2.00  $1,000 

200    "     Fancy  Suitings         "      1.75  350     $1,350 


Terms  2/10,  n/30 

Transaction  No.  200  May  2,  19    . 

Sold  to  T.  Wilson  &  Co.,  Bridgeport,  Conn. 
400  yds.  Fancy  Suitings        at  $1.80  $720 

200    "     Serge  "     2.10  420     $1,140 


Terms  2/10,  n/30 


ASSIGNMENT    XIII  193 

Transaction  No.  201  May  2,  19    . 

Sold  Keller  &  Co.,  C.  O.  D.  customer. 
200  yds.  Cloakings  at  $2.00  $400 

Terms:  2%  for  cash. 
Debit— C.  O.  D.  See  transaction  No.  202. 

Transaction  No.  202  May  2,  19    . 

Received  cash  in  amount  $392  from  Keller  &  Co., 
C.  O.  D.  customer,  covering  invoice  May  2,  $400  less  2^0 
cash  discount  $8. 

Transaction  No.  203  May  2,  19    . 

The  bookkeeper  draws  at  sight  through  the  Wall  Street 
Trust  Co.  for  collection  on  all  customers  who  owe  Feb- 
ruary and  March  invoices. 

Drafts  were  drawn  on  the  following: 

J.  Link  invoice  2/28  $  437-50 

L.  Crane      "  3/18  2,250.00 

Cann  &  Co. "  3/i5  5«>-oo 

Transaction  No.  204  May  3,  19    • 

Received  notice  from  bank  that  drafts  on  J.  Link 
$437.50  and  L.  Crane  $2,250  were  paid.  Draft  on  Cann 
&  Co.  is  returned  with  the  notation  "sent  note  yester- 
day." 

Transaction  No.  205  May  3,  19    . 

Received  note  from  Cann  &  Co.  dated  May  i,  at 
60  days  with  interest  at  5%,  in  amount  $500,  invoice 
March  15. 

Transaction  No.  206  May  4,  19    • 

Received  invoice  from  Marshall  &  Co.  for  freight  on 

invoice  May  2,  $6.50. 

Transaction  No.  207  May  4,  I9    • 

Received  check,  in  amount  $2,550,  from  Dublin  &  Co., 
in  payment  of  account,  $2,595  less  2%  discount  $45.  on 
invoice  of  April  23. 

Transaction  No.  208  May  4,  I9    • 

Paid  by  check  #67,  Tower  Mfg.  Co.,  $12.50,  invoice 

April  4. 

u 


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194 


BOOKKEEPING,   THEORY  AND   PRACTICE 


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15 


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Transaction  No.  209  ^^y  ^    jq 

Paid   by   check   #68,  N.   Y.   Desk   Co.,   $40'  invoice 
April  4. 

Transaction  No.  210  May  6,  19 

Received  invoice  from  Bell  &  Co.,  Passaic,  N.  J.,  for 
merchandise  purchased: 
800  yds.  Serge  at  $1.50  $1,200 


(( 


1. 10 


550     $1,750 


500    "     Flannel 
Terms  2/10,  n/30 


Transaction  No.  211  May  6,  19    . 

Bank  pass-book  shows  balance  of  $2,628.71  at  April 
30  after  allowing  $3.11  interest  and  charging  $5.50  for 
collections.  All  cancelled  checks  returned  with  the  ex- 
ception of  #62  and  63. 

Transaction  No.  212  May  6,  19 

Received  invoice  from  Taylor  Mfg.  Co.  for  merchan- 
dise purchased: 

500  yds.  Broadcloth  at  $3.10  $1,550 

Terms  2/10,  n/30 

Transaction  No.  213  May  6,  19    . 

Received  invoice  from  Baldwin  Mfg.  Co.  for  merchan- 
dise purchased: 

1000  yds.  Fancy  Suitings        at  $1.25  $1,250 

Terms  2/10,  n/30 


Transaction  No.  214 

Paid  out  of  petty  cash : 
Freight  on  merchandise  purchased 

Charge  Inward  Freight. 
Freight  on  merchandise  sold 

Charge  Outward  Freight. 
Postage  (stamps) 


May  7,  19 

$4-75 

9-75 
5.00 


Transaction  No.  215  May  7,  19 

Drew  check  #69,  in  amount  $25,  for  petty  cash. 


ASSIGNMENT     XIII 


195 


Transaction  No.  216  May  8,  19 

Paid  by  check  #70,  Jackson  Mills,  $3,050,  invoice 
March  5,  19    . 

Transaction  No.  217  May  9,  19 

Bell  &  Co.  drew  at  10  days  after  date  for  $1,500,  cover- 
ing invoice  dated  March  20.  Draft  is  accepted  by  us 
payable  at  the  Wall  Street  Trust  Co. 

Transaction  No.  218  May  10,  19 

Note  at  60  days,  in  amount  $5,000,  discounted  at  Wall 
Street  Trust  Co.  on  March  11,  is  due  today.  Mr.  Reid 
requests  the  bank  to  accept  $1,000  on  account  and  re- 
newal note  for  $4,000  due  in  2  months. 

The  bank  charges  Mr.  Reid's  account  with  $1,040.67. 

Transaction  No.  219  May  10,  19 

Note  of  Mr.  Reid's,  in  amount  $100,  in  favor  of  Wilcox 
Motor  Truck  Co.,  dated  April  10,  payable  in  one  month 
with  interest  at  6%,  presented  to  Wall  Street  Trust  Co. 
and  paid. 

Transaction  No.  220  May  11,  19 

Sold  Marshall  &  Co.,  New  Haven,  Conn. 
500  yds.  Fancy  Suitings         at  $1.75  $875 


300 


Broadcloth 


(( 


4.00 


1,200     $2,075 


Terms  2/10,  n/30 


Transaction  No.  221 

Sold  Lynn  &  Jones,  Buffalo,  N.  Y. 
250  yds.  Melton  at  $4.00 

300    "     Golf  Cloth  «     2.00 


May  II,  19    . 

$1,000 

600     $1,600 


Terms  2%  S/D  with  B/L  attached. 
Charge  C.  O.  D.  Account. 
See  transaction  No.  222. 

Transaction  No.  222  May  11,  19 

Drew  on  Lynn  &  Jones  (C.  O.  D.  customer),  Buffalo, 

N.  Y.,  at  sight  for  $1,568  invoice  May  11,  $1,600  less 

2%  discount  ($32). 

The  draft  was  paid.     See  transaction  No.  221. 


196 


BOOKKEEPING,   THEORY  AND   PRACTICE 


I 


Transaction  No.  223 

Paid  out  of  petty  cash: 
Ferrying  auto 
Window  cleaning 
Towel  service 

Freight  on  shipment  to  Lynn 
&  Jones  (Charge  Freight  & 
Express  Outward) 


May  II,  19 

$1.60 
2.00 
2.25 


12.50 


I 


Transaction  No.  224  May  13,  19 

Received  check,  in  amount  $1,316.50,  from  Marshall  & 
Co.  in  payment  of  their  account  as  follows : 

Invoice  May  2  $1,350.00 

Less  2%  discount  27.00 


Less  freight 


$1,323.00 
6.50 

$1,316.50 


Transaction  No.  225  May  16,  19    . 

Paid  by  check  #71,  Taylor  Mfg.  Co.,  Paterson,  N.  J., 
$1,519,  invoice  May  6,  $1,550  less  2%  cash  discount  $31. 

Transaction  No.  226  May  16,  19 

Paid  by  check  #72,  Remington  Typewriter  Co.,  $150, 
invoice  Apr.  2. 

Transaction  No.  227  May  16,  19    . 

Purchased  from  Reynolds  &  Co.,  Passaic,  N.  J. 
750  yds.  Cloakings  at  $1.50  $1,125 

500    "     Broadcloth  "     3.20  1,600     $2,725 


Terms  2/10,  n/30 

Transaction  No.  228  May  16,  19 

Purchased  from  Lawrence  Bros.,  City: 
Auto  Supplies,  $46. 
Debit — ^Auto  Expense. 


ASSIGNMENT    XIII  jg^ 

Transaction  No.  229  May  18,  19    . 

Purchased  from  Eclipse  Mills,  Altoona,  Pa. 
500  yds.  Melton  at  $2.50  $1,250 

Terms  2%  S/D  with  B/L  attached. 
See  transaction  No.  230. 

Transaction  No.  230  May  18,  19    . 

Paid  by  check  #73,  sight  draft  of  Eclipse  Mills,  in 
amount  $1,225,  presented  by  University  National  Bank. 
Invoice  May  18,  $1,250,  less  2%  cash  discount  $25. 

See  transaction  No.  229. 

Transaction  No.  231  May  19,  19    , 

Draft  of  Bell  &  Co.  dated  May  9  at  10  days  after  date, 
in  amount  $1,500  and  accepted  by  us,  presented  to  the 
Wall  Street  Trust  Co.  and  paid. 
See  transaction  No.  217. 

Transaction  No.  232  May  19,  19    . 

Note  of  Jas.  T.  Ludlow,  in  amount  $1,050,  at  one  month 
with  interest  at  5%  due  today,  reported  paid  by  the  bank. 

Transaction  No.  233  May  20,  19    . 

Sold  for  cash,  50  yds.  Fancy  Suitings  at  $1.75,  $87.50 
less  2%  $1.75,  cash  received  $85.75. 

Transaction  No.  234  May  20,  19    . 

The  Modern  Tailoring  Co.  is  only  temporarily  embar- 
rassed owing  to  the  failure  of  a  large  customer ;  hence  the 
creditors  agree  to  accept  40%  of  their  accounts  in  cash 
and  to  take  notes  maturing  monthly  for  three  months  for 
the  balance. 

Received  from  Modem  Tailoring  Co.  check,  in  amount 
$65.52,  and  notes  as  follows: 

May  20  due  in  i  month  with  int.  at  6%     $32.76 


(( 


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20 
20 


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((    If 


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« 


« 


« 


: 


Transaction  No.  235 

Sold  Lawrence  Bros.,  City: 
250  yds.  Serge  at  $2.00 

Terms  2/10,  n/30 


6%      32.76 
6%      32.75 

May  20,  19 
$500 


198 


BOOKKEEPING,   THEORY   AND   PRACTICE 


II 


i  i 


14 

II 


I  iV'l 


f* 


I    ;  i 


Transaction  No.  236 

Sold  Dawson  &  Co.,  Utica,  N.  Y. 
200  yds.  Melton  at  $3.25 

Terms  2/10,  n/30 

Transaction  No.  22i'j 

Sold  Dublin  &  Co.,  Chicago,  111. 
250  yds.  Flannel  at  $1.60 

350    "     Qoakings  "     2.10 

Terms  2/10,  n/30 

Transaction  No.  238 

Sold  W.  Hall,  Mt.  Vernon,  N.  Y. 
300  yds.  Fancy  Suitings        at  $1.75 
Terms  2/10,  n/30 


Transaction  No.  239 

Sold  I.  Hughes,  City 
400  yds.  Broadcloth 
300    "      Cloakings 

Terms  2/10,  n/30 


May  20,  19    . 
$650 

May  20,  19    . 

$400 
735     $1,135 


at  $4.00 
2.00 


« 


May  20,  19    . 

$525 

May  22,  19    . 

$1,600 

600     $2,200 


Transaction  No.  240  May  23,  19 

Paid  by  check  #74,  N.  Y.  Edison  Co.,  $14.25,  April 
lighting. 

Transaction  No.  241  May  22,,  19 

Paid  by  check  #75,  N.  Y.  Telephone  Co.,  $18.75,  for 
April  service. 

Transaction  No.  242  May  23,  19 

Drew  check  ^yd,  in  amount  $25,  for  petty  cash. 

Transaction  No.  243  May  23,  19 

Paid  by  check  i^y-j.  Consolidated  Gas  Co.,  $8.75,  April 
lighting. 

Transaction  No.  244  May  25,  19 

Drew  check  #78,  in  amount  $100,  to  order  of  Wall 
Street  Trust  Co.  Red  Cross  Fund. 


ASSIGNMENT     XIII 


199 


Transaction  No.  245  May  25,  19 

Cashed  check  of  Mr.  Reid,  in  amount  $10,  out  of  petty 
cash. 

Transaction  No.  246  May  25,  19 

Paid  by  check  #79,  Reynolds  &  Co.,  $937.50,  invoice 
April  25,  19    . 


Transaction  No.  247 

Sold  Jas.  T.  Ludlow,  Boston,  Mass. 
500  yds.  Serge  at  $2.00 


200 


« 


Flannel 


u 


1.50 


May  25,  19    . 

$1,000 

300     $1,300 


Terms  2/10,  n/30 


Transaction  No.  248 

Sold  Potash  &  Perlmutter,  City : 

200  yds.  Broadcloth  at  $4.10 

Terms  2/10,  n/30  {as  June  10) 


May  2y,  19 

$1,025 


Transaction  No.  249  May  27,  19 

Sold  to  Miller  &  Co.,  Albany,  N.  Y. 

400  yds.  Serge  at  $2.00             $800 

.  250    "     Golf  Cloth  "     2.00              500     $1,300 


Terms  2/10,  n/30 

Transaction  No.  250  May  31,  19 

Paid  by  check  #80,  in  amount  $480,  salaries  as  fol- 
lows : 

Mr.  Reid  $200 
Bookkeeper  1 10 

Clerk  90 

Chauffeur  80 

J" 

Transaction  No.  251  May  31,  19    . 

Paid  by  check  #81,  in  amount  $255,  H.  Jenkins,  sales- 
man, salary  $175,  travelling  expenses  $80. 

Transaction  No.  252  May  31,  19    . 

Paid  by  check  #82,  Dry  Goods  Journal,  $40,  adver- 
tising for  month. 


f 


200 


BOOKKEEPING,   THEORY   AND   PRACTICE 


1 

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V. 

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I 


Transaction  No.  253  May  31,  19    . 

Received  invoice  from  Tower  Mfg.  Co.,  $25,  for  sta- 
tionery. 
Debit — Stationery  &  Printing. 

Transaction  No.  254  May  31,  19    . 

Received  invoice  from  Auto  Supply  Co.,  $40,  for  auto 
supplies. 
Debit — ^Auto  Expense. 


Home  Work: 


(i)  Enter  in  the  Sales  Journal  transactions 
numbered  199,  200,  201,  220,  221,  235, 
236,  237,  238,  239,  247,  248,  and  249. 

(2)  Enter  in  the  Purchase  Journal  transactions 

numbered   210,   212,   213,   227,    228,    229, 
253,  and  254. 

(3)  Post  May  transactions  from  books  of  orig- 

inal entry  in  the  following  order: 

(a)  Sales  Journal. 

(b)  Purchase  Journal. 

(c)  Journal. 

(d)  Cash  Journal. 

(e)  Petty  Cash  Journal. 

(4)  Prepare : 

(a)  Trial  Balance. 

(b)  Schedule  of  Customers'  Accounts. 

(c)  Schedule  of  Creditors*  Accounts. 


ASSIGNMENT  XIV 

REVIEW 


Home  Work: 


Without  aid  from  the  instructor,  close  the  books 
and  prepare  a  balance  sheet  at  May  31,  19  , 
using  as  a  guide  the  closing  entries  made  at 
April  30,  19    . 


Tl 
(a) 

le  inventories  at  May  31,  19    ,  are  as 

Merchandise : 

175  yds.  Serge                       at  $1.60 
800    "         "                           "      1.50 

500    "      Flannels                  '*      i.io 
230    "         "                           "      1.20 

1480    "     Fancy  Suitings       "      1.25 
850    "     Cloakings                "      1.40 

750    "         "                           "      1.50 

500    "     Broadcloth              "     3.20 

500    "         "                           "      3.10 

75    "         "                           "     300 

750    "      Melton                      "     2.50 
450    "     Golf  Cloth              "      1.50 

Total  Merchandise  In 
Stationery  &  Printing 
Insurance  (9  months  at  $20) 

follows : 

$280 
1,200 

$1,480 

550 
276 

826 

1,190 
1,125 

11,850 
2,315 

1,600 

1,550 
225 

3,375 

ventory 

1,875 
675 

(b) 

$12,396 
$       15 

(c) 

$     180 

r    i 


201 


14 1 


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SUPPLEMENTARY    ASSIGNMENT    I 


203 


I  [ 


'  II 

I 


III 


Outline : 


Note: 


SUPPLEMENTARY  ASSIGNMENTS 
ASSIGNMENT   I 

Enter  June  transactions. 

Note:  Sales  and  purchase  transactions  are  to  be  re- 
corded by  the  students  outside  of  class;  all 
other  transactions  are  to  be  recorded  by  the 
students  in  class  under  the  guidance  of  the 
instructor. 

STATEMENT   OF   TRANSACTIONS 

JUNE  TRANSACTIONS 

A  separate  page  in  the  Purchase  Journal  should  be  used 
for  recording  purchase  returns  and  allowances,  and  a 
separate  page  in  the  Sales  Journal  should  be  used  for 
recording  sales  returns  and  allowances. 

New  Accounts  to  be  Opened: 
In  General  Ledger: 

6B.     Freight  Prepaid. 
In  Customers'  Ledger. 

loA.    Tompkins  &  Co. 
loB.    Phila.  R.  R.  Co. 
In  Creditors*  Ledger. 

8A.    Sellew  &  Co. 

The  transactions  for  the  month  of  June  were  as  follows : 

Transaction  No.  255  June  i,  19    . 

Left  note  of  Potash  &  Perlmutter  due  June  3  with  bank 
for  collection. 

Transaction  No.  256  June  i    10 

Paid  by  check  #83,  Jay  Realty  Co.,  $200,  Vent  for 
June. 

Transaction  No.  257  June  i,  19    . 

Paid  by  check  #84,  Modern  Garage,  $24,  rent  of  auto 
for  June. 


2Q2 


Transaction  No.  258  June  i,  19 

The  bookkeeper  draws  at  sight  on  the  following  cus- 
tomers : 

L.  Crane  invoice  April  23  $1,000 

L  Hughes      "            "     12  g2S 

W.  Hall         "            "     23  300 

Miller  &  Co.  "            "     23  925 
Stewart  &  Meyers  invoice  April  23     1,250 

Transaction  No.  259  June  3,  19    . 

Received  check  from  Lawrence  Bros.,  in  amount  $450,. 
and  statement  of  remittance  as  follows: 
May  30    Your  invoice  $500 

Less  2%  10        $490 


May  16    Our  invoice 


40        $450 


Transaction  No.  260  June  3,  19 

Note  of  Potash  &  Perlmutter,  in  amount  $1,100,  dated 
April  4,  at  60  days  with  interest  at  6%,  is  paid  at  bank. 

Transaction  No.  261  Jime  3,  19 

Received  check  from  Stewart  &  Myers,  in  amount 
$1,100,  in  payment  of  invoice  April  23,  $1,250  less  $150 
for  overcharge  on  items  of  200  yds.  Melton  at  $4.00. 
The  price  should  be  $3.25.     The  deduction  is  allowed. 

Transaction  No.  262  June  3,  19 

Received  invoice  from  Jas.  T.  Ludlow,  Boston,  (our 
customer),  covering  one  piece  50  yds.  Serge  at  $2,  $100,. 
returned  on  account  of  defect  in  weave.  Goods  have 
not  as  yet  been  received.    Make  no  entry. 

Transaction  No.  263  June  4,  19 

Received  notice  from  bank  that  the  following  sight 
drafts  have  been  paid: 

L.  Crane  $1,000 

I.  Hughes  925 

W.  Hall  300 

Miller  &  Co.  925 

The  draft  on  Stewart  &  Myers  is  returned  with  the 
notation,  "Have  remitted  direct." 


I. 


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1 


204 


BOOKKEEPING,   THEORY  AND   PRACTICE 


Transaction  No.  264  June  4,  19 

Received  invoice  from  Taylor  Mfg.  Co.,  Paterson,  N.  J., 

for  merchandise  purchased: 

1000  yds.  Golf  Cloth  at  $1.50  $1,500 

Terms  2/10,  n/30  F.  O.  B.  N.  Y.     (Shipped  freight 

collect.) 

Transaction  No.  265  June  5,  19 

Received  invoice  from  Baldwin  Mfg.  Co.,  Altoona,  Pa., 
for  merchandise  purchased: 
1000  yds.  Flannel  at  $1.10  $r, 100.00 

Freight  prepaid  5.50    $1,105.50 


Terms  2/10,  n/30  F.  O.  B.  Altoona. 

Transaction  No.  266  June  5,  19 

Received  invoice  from  Eclipse  Mills,  Altoona,  Pa.,  for 

merchandise  purchased: 

1200  yds.  Serge  at  $1.50  $1,800 

Terms  2%  subject  to  acceptance  payable  10  days  after 

date.     F.  O.  B.  Altoona,  Pa. 

Transaction  No.  267  June  6,  10 

Accepted  (payable  at  Wall  Street  Trust  Co.)  draft  of 
Eclipse  Mills,  in  amount  $1,764,  payable  10  days  after 
date  (June  5).  Invoice  June  5,  $1,800,  less  2%  cash 
discount  $36. 

Transaction  No.  268  June  6,  19    . 

Drew  check  #85,  in  amount  $25,  for  petty  cash. 

Transaction  No.  269  June  6,  19    . 

Received  from  Jas.  T.  Ludlow,  Boston,  50  yds.  Serge 
at  $2.00,  $100,  returned  by  them. 
Credit  memo,  is  issued;  material  was  defective. 


SUPPLEMENTARY    ASSIGNMENT    I 


205 


Transaction  No.  270 

Paid  out  of  petty  cash: 
Freight  on  shipment  of  Taylor  Mfg.  Co. 

See  transaction  No.  264. 
Freight  on  shipment  of  Eclipse  Mills 

See  transaction  No.  266. 
Expressage  on  package  received   from 
Jas.  T.  Ludlow 

See  transaction  No.  269. 


June  6,  19 
$6.25 

8.75 
•75 


Transaction  No.  271 

June  7, 

19    . 

Sold  to  L.  Crane,  City: 

300  yds.  Serge 

at  $2.00 

$600 

400     "      Cloakings 

"      2.00 

800 

$1,400 

Terms  2/10,  n/30 

Transaction  No.  272 

June  7, 

19    . 

Sold  to  L  Hughes,  City: 

250  yds.  Broadcloth 

at  $4.00 

$1,000 

Terms  2/10,  n/30 

Transaction  No.  273 

June  7, 

19    . 

Sold  to  W.  Hall,  City: 

300  yds.  Melton 

at  $3.25 

$975 

Terms  2/10,  n/30 

Transaction  No.  274 

June  8, 

19    . 

Sold  to  Miller  &  Co.,  Albany,  N.  Y. 

300  yds.  Fancy  Suitings 

at  $1.75 

$525 

200    "      Serge 

"      2.00 

400 

$925 

Terms  2/10,  n/30  F.  O.  B.  N.  Y. 

Transaction  No.  275  June  8,  19    . 

Received  invoice  from  L  Hughes  (our  customer)  cover- 
ing shortage  of  one  piece  50  yds.  Broadcloth  at  $4,  $200, 
on  our  shipment  of  June  7.  The  claim  is  allowed,  as  an 
error  was  made  in  billing.  The  quantity  actually  shipped 
was  200  yds.  instead  of  250. 


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(/ 


206  BOOKKEEPING,   THEORY  AND   PRACTICE 

Transaction  No    276  j^„^  ^^ 

Note  of  Modern  Tailoring  Co.  $32.76  dated  May  10  at 
30  days  with  interest  at  6%  reported  by  the  bank  as  paid. 

Transaction  No.  277  t„„^  ,^ 

XT         £  June  10,  19    . 

Note  of  April  10  in  favor  of  Wilcox  Motor  Truck  Co 
in  amount  $100  and  interest  at  6%,  presented  to  Wall 
Street  Trust  Co.  and  paid. 


SUPPLEMENTARY    ASSIGNMENT    I 


207 


Transaction  No.  278 

Received  checks  from: 
T.  Wilson  &  Co.,  invoice  May  2 
Jas.  T.  Ludlow,  bal.  of  a/c  $1,200  less 

2%  cash  discount  $24 
Potash   &  Perlmutter,   May  2^,  $1,025 

less  2%  cash  discount  $20.50 


June  10,  19 

$1,140.00 

1,176.00 

1,004.50 


Transaction  No.  279  j^^^  ^^    ^^ 

Had  bank  pass-book  balanced.     The  bank's  statement 

.11  ^^  l\o^.  '  '^°^'  '  ^"^""'^  «^  $^'515.04  after 
allowmg  $4.68  for  interest  and  charging  $6.25  for  collec- 
tions.   All  checks  were  returned  except  79,  81  and  82. 

Transaction  No.  280  j^„,  ^^ 

Returned  to  Bell  &  Co.,  Passaic,  N.  J.,  via  express  col- 
lect 50  yds.  Serge  at  $1.50,  $75.  (Returned  on  account 
ot  detects  in  weave.) 

Transaction  No.  281  j„„,  ,^^  ^^ 

Sent  Taylor  Mfg.  Co.  our  invoice  for  $150  covering 
shortage  of  100  yds.  Golf  Cloth  at  $1.50  in  their  shipment 
of  June  5,  19    . 

Transaction  No.  282  j^„,  ^^^  ^^ 

Paid  by  check  #86,  J.  Slater,  $20,  invoice  Mar.  5. 

Transaction  No.  283  j^„e  12,  19    . 

Paid  by  check  #87,  N.  Y.  Edison  Co.,  $13,  May  service. 

Transaction  No.  284  j^^e  13,  19    . 

Drew  check  #88,  in  amount  $50,  for  petty  cash. 


Transaction  No.  285  June  13,  19     . 

Paid  by  check  #89,  N.  Y.  Telephone,  $19.25,  for  tele- 
phone service. 

Transaction  No.  286  June  14,  19    . 

Paid  by  check  #90,  Taylor  Mfg.  Co.,  $1,316.75,  in- 
voice June  4,  19  ,  $1,500  less  our  claim  for  shortage 
$150,  cash  discount  $27  and  freight  $6.25. 

Transaction  No.  287  June  14,  19    . 

Paid  by  check  #91,  N.  Y.  Life  Insurance  Co.,  $300, 
premium  on  personal  policy  of  Mr.  Reid. 

Transaction  No.  288  June  15,   19    . 

Received  from  Bell  &  Co.  credit  memo.,  in  amount 
$75,  covering  50  yds.  Serge  at  $1.50,  $75,  returned  by 
us  June  12,  19    . 

See  transaction  No.  280.     Make  no  entry. 

Transaction  No.  289  June  15,  19    . 

Received    from    Taylor    Mfg.    Co.    credit    memo.,    in 
amount  $150,  covering  shortage  of  100  yds.  Golf  Cloth 
at  $1.50  on  the  shipment  of  June  4,  19     .    Make  no  entry. 
See  transaction  No.  281. 

Transaction  No.  290  June  15,  19     . 

Draft  of  Eclipse  Mills,  in  amount  $1,764,  dated  June  5, 
and  accepted  by  us,  is  presented  to  the  Wall  Street  Trust 
Co.  and  paid. 

Transaction  No.  291  June  15,  19    . 

Received  note  dated  June  11,  at  2  months  with  interest 
at  6%,  in  amount  $2,075,  ^rom  Marshall  &  Co.,  in  pay- 
ment of  invoice  May  11,  $2,075. 

Transaction  No.  292  June  16,  19    . 

Sold  to  Jas.  T.  Ludlow,  Boston,  Mass. 
500  yds.  Serge  at  $2.00  $1,000 


300 


it 


Flannels 


(( 


1.50 


450     $1,450 


Terms  2/10,  n/30,  F.  O.  B.  Boston,  Mass. 


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208 


BOOKKEEPING,   THEORY  AND   PRACTICE 


SUPPLEMENTARY    ASSIGNMENT    I 


Transaction  No.  293 

Sold  to  Lawrence  Bros.,  City: 
250  yds.  Cloakings  at  $2.00 


200 


Broadcloth 


tt 


4.00 


June  16,  19    . 

$500 
800     $1,300 


Terms  2/10,  n/30 


Transaction  No.  294  June  18,  19    . 

Sold  to  Dawson  &  Co.,  Utica,  N.  Y. 
500  yds.  Flannels  at  $1.50  $750 

300    "      Serge  "     2.00  600     $1,350 


Terms  2/10,  n/30,  F.  O.  B.  N.  Y. 

Transaction  No.  295  June  18,  19    . 

Sold  to  Lynn  &  Jones,  Buffalo,  N.  Y. 

500  yds.  Golf  Cloth            at  $2.00  $1,000.00 

300    "      Broadcloth            "     4.00  1,200.00 

"      325  812.50    $3,012.50 


250 


n 


Melton 


(Shipped  freight  prepaid) 


12.25 


$3,024.75 


Total 
Terms  2%  S/D  with  B/L  F.  O.  B.  N.  Y. 
(Charge  C.  O.  D.   a/c.) 

Transaction  No.  296  June  18,  19 

Drew  on  Lynn  &  Jones  at  sight  with  bill  of  lading 
attached  for  $2,964.50  invoice  June  18,  $3,024.75  less  2% 
discount  ($60.25)  on  $3,012.50. 
The  draft  was  paid. 


June  18,  19 


Transaction  No.  297 

Paid  out  of  petty  cash: 
Freight  on  shipment  to  Lynn  &  Jones,  Buffalo,  N.  Y., 
$12.25.     Charge  Freight  Prepaid. 

See  transaction  No.  295. 
Postage  stamps  $10.00 

Ferrying  auto  j  ^q 

Dinner  for  bookkeeper  1.25 


209 


Transaction  No.  298  June  18,  19    . 

Received  check,  in  the  amount  of  $784,  from  I.  Hughes 
in  payment  of  invoice  June  7,  $1,000  less  allowance  for 
shortage  $200  and  2%  cash  discount  $16. 

Transaction  No.  299  June  21,  19 

Gave  Eclipse  Mills  note  dated  June  21,  at  one  month 
.   with  interest  at  6%  in  the  amount  of  $2,150  in  settlement 
of  invoice  dated  April  25. 

Transaction  No.  300  June  21,  19     . 

Paid  by  check  #92,  Baldwin  Mfg.  Co.,  $2,750,  invoice 
of  March  20  ($1,500)   and  May  6  ($1,250). 


Transaction  No.  301  June  22,  19    . 

Paid    by    check    #93,    Bell    &    Co.,    $1400,    invoice 
April  17. 

Transaction  No.  302  June  22,  19    . 

Received  invoice  from  Reynolds  &  Co.,  Passaic,  N.  J., 
for  merchandise  purchased: 
750  yds.  Fancy  Suitings         at  $1.20  $900 


500 


tt 


Broadcloth 


t* 


3.20 


1,600     $2,500 


Terms  2/10,  n/30,  F.  O.  B.  Passaic,  N.  J. 

Transaction  No.  303  June  24,  19    . 

Received   invoice   from  Jackson   Mills,   Scranton,   Pa., 
for  merchandise  purchased: 
1200  yds.  Melton  at  $2.50  $3,000 

Terms  2/10,  n/30,  F.  O.  B.  Scranton,  Pa. 

Transaction  No.  304  June  24,  19    . 

Received  invoice  from  Bell  &  Co.,  Passaic,  N.  J.,  for 
merchandise  purchased: 

500  yds.  Cloakings  at  $1.40  $700 

500    "     Serge  "1.60  800     $1,500 


Terms  2/10,  n/30,  F.  O.  B.  Passaic,  N.  J. 


14 


f 


2IO 


BOOKKEEPING.   THEORY  AND   PRACTICE 


111 


I 


Transaction  No.  305  June  25,  19    . 

Sold  to  Tompkins  &  Co.,  Phila.,  Pa. 
500  yds.  Fancy  Suitings        at  $1.75  $875 

350     "      Cloakings  "      2.00  700     $1,575 

Terms  2/10,  n/30,  F.  O.  B.  N.  Y. 

Transaction  No.  306 

Sold  to  J.  Link,  Newark,  N.  J. 

500  yds.  Melton  at  $3.25 

Terms  2/10,  n/30,  F.  O.  B.  N.  Y. 


June  26,  19 
$1,625 


June  2^,  19    . 


Transaction  No.  307 

Paid  out  of  petty  cash : 
Freight  on  shipment  from  Reynolds  &  Co.     $10.75 

Jackson  Mills  1450 

"        "         "  "      Bell  &  Co.  8.25 

See  transactions  #302,  303,  and  304. 

Transaction  No.  308  June  26,  19    . 

Our  note  dated  April  26,  in  favor  of  Taylor  Mfg.  Co., 
in  amount  $3,471  30,  is  presented  at  the  Wall  Street  Trust 
Co.  and  paid.     See  transaction  #185. 

Transaction  No.  309  June  27,  19    . 

Received  invoice  from  Sellew  &  Co.  for  filing  cabinet 
$35. 

Transaction  No.  310  june  28,  19    . 

Received  invoice  from  Tower  Mfg.  Co.  for  stationery 

$25. 

Transaction  No.  311  June  29,  19     . 

Paid  by  check  #94,  in  the  amount  of  $660,  salaries  for 
the  month  as  follows  : 

Mr.  Reid  $300 

Bookkeeper  150 

Clerk  no 

Chauffeur  100 

As  a  result  of  the  high  cost  of  living,  salaries  have 
been  increased. 


SUPPLEMENTARY  ASSIGNMENT  I 


211 


Transaction  No.  312  June  29,  19    . 

Paid  by  check  #95,  Auto  Supply  Co.,  $65,  invoices  of 
April  30,  and  May  31. 

Transaction  No.  313  June  29,  19    . 

Paid  by  check  #96,  H.  Jenkins,  salesman,  $285,  salary 
$200,  travelling  expenses  $85. 

Transaction  No.  314  June  29,  19    . 

Paid  by  check  #97,  Dry  Goods  Journal,  $40,  June 
advertisement. 

Transaction  No.  315  June  29,  19    . 

Received  note  from  Dawson  &  Co.  dated  June  20  at 
two  months  with  interest  at  6%  for  $650  in  payment  of 
invoice  dated  May  20. 

Transaction  No.  316  June  29,  19    . 

Tompkins  &  Co.,  Phila.,  Pa.,  send  invoice  covering  two 
pieces  100  yds.  Cloakings  at  $2.00  short  on  shipment  of 
June  25.     Claim  is  filed  by  us  with  Phila.  R.  R.  Co. 

Transaction  No.  317  June  29,  19    . 

Dawson  &  Co.  of  Utica,  N.  Y.,  request  us  to  have  ship- 
ment of  June  18  traced. 

Transaction  No.  318  June  29,  19    . 

Received  check,  in  amount  $600,  from  W.  Young,  Re- 
ceiver, representing  first  and  final  dividend  of  60%  on 
our  claim  of  $1,000  in  re  Wm.  Bradhurst  who  had  been 
forced  into  bankruptcy. 


Home  work: 


( 1 )  Post. 

(2)  Take  a  trial  balance. 

(3)  Prepare  the  following  statements: 

(a)  Schedule  of  Customers*  balances. 

(b)  Schedule  of  Creditors'  balances. 


11 

r 

i 

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! 


(I) 
(2) 


(a) 


ASSIGNMENT  II 

Close  the  books  at  June  30,  19    ,  using  a  Trading  and 

Profit  &  Loss  Account. 
Prepare  a  balance  sheet  at  June  30,  19 

The  inventories  at  June  30,  19    ,  are  as  follows: 


Merchandise. 

875  yds 

Serge 

at 

$1.50 

$1,312.50 

500 

« 

(f 
Flannels 

tt 
tt 

1.60 
1. 10 

800.00 

$2,112.50 

430 

473.00 

680 

n 

Fancy  Suitings 

tt 

1-25 

850.00 

750 

tt 
tt 

Cloakings 

tt 
tt 

1.20 
1.50 

900.00 

1,75000 

1 100 

1,650.00 

300 

n 

Broadcloth 

*t 

3.10 

930.00 

75 

it 

<i 

*t 

300 

225.00 

500 

tt 

tt 

tt 

3.20 

1,600.00 

2,75500 

900 


tt 


Melton 


If 


1.50 


1,275.00 


Total  Merchandise  Inventory        $12,265.50 

(b)  Stationery  &  Printing 

(c)  Insurance,  8  months  at  $20 


$       25.00 


$      160.00 


Open  Trading  and  Profit  &  Loss  Account,  page  26A. 


ASSIGNMENT   III 

The  ledger  of  A.  Reid  at  July  31,  19    ,  shows  the  following 
balances : 


212 


Cash 

Notes  Receivable 

Petty  Cash 

Creditors'  Controlling  Account 

Cash  Discount  on  Sales 

Cartage 

Discount  on  Notes 

Cash  Discount  on  Purchases 

Freight  &  Express  Inward 

Interest  on  Notes  Receivable 

Freight  &  Express  Outward . 

Interest  on  Notes  Payable 

Liberty  Bonds 

Furniture  &  Fixtures 

Auto  Truck 

Customers'  Controlling  Account 

Merchandise  Inventory 

Notes  Payable 

A.  Reid,  Proprietor 

Salary — Mr.  Reid 

A.  Reid  Drawing  Acct.  "Dr." 

Sales 

Stationery  and  Printing 

Insurance 

Expense 

Purchases 

Auto  Expense 

Interest  on  Bank  Balances 

Salaries  of  Salesmen 

Travelling  Expenses  of  Salesmen 

Advertising 

Salaries — Office 

Postage 

Rent 

Light 

Telephone  &  Telegraph 


$2,500.00 
3,100.00 
50.00 
9,000.00 
125.00 
3500 
50.00 
100.00 
20.00 
25.00 
30.00 
10.06 
1,500.00 
1,200.00 
1,400.00 
15,000.00 
12,265.50 
8,000.00 
18,469.56 
250.00 
500.00 
14,000.00 
25.00 
160.00 
200.00 
10,094.00 
250.00 
15.00 
200.00 
90.00 
50,00 
225.00 
25.00 
200.00 
40.00 
15.00 


213 


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I. 


\i 


214 


BOOKKEEPING,   THEORY  AND   PRACTICE 


From  the  foregoing,  prepare: 

(a)  Trial  Balance  at  July  31,  19    . 

(b)  Closing  Journal  entries  using  the  Trading  and  Profit 

&  Loss  Account. 

(c)  Balance  Sheet  at  July  31,  19    . 

The  inventories  at  July  31,  19,  are  as  follows: 

Merchandise  Inventory  $13,000.00 

Insurance  Prepaid  140.00 


ASSIGNMENT   IV 

On  loose  sheets  of  journal  and  ledger  paper,  record  January- 
transactions  by  the  single  entry  system. 


PART  III 
BUSINESS   FORMS   AND   PAPERS 


f 


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II 


■  1; 


II 


BUSINESS   FORMS   AND   PAPERS 


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Form  No.  i 


Deposit  Side  of  Check  Stub 


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217 


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BOOKKEEPING,   THEORY  AND   PRACTICE 

Form  No.  2 
Deposit  Slip 


BEPOSITED  TO  THE  C^REIHT  OF 


VilOlr: 


WALL  ST.  TRUST  CO. 


PLEASE  OMIT  ALL  DOLLAR  SIGNS 


Rftin 

DOLLARS 

CENTS 

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Bank. 

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CHECKS    CREDITED   SUBJECT  TO    PAYMENT 


BUSINESS     FORMS    AND     PAPERS 
Porm  No.  j 

Purchase  Invoice  Covering  Services  Received 
See  Transaction  No.  2 


219 


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Form  No.  4 

Example  of  Rubber  Stamp  Used  for  Approving 

Purchase  Invoices 


Received     Prices  &  Terms  O.  K. 

Material  Rec'd  Rec'd   by    

Calculations    O.    K Sent  to  N.  Y 

Approved     Charge    

Ent'd    Purch.    Journal    Charge  R.  B.  B 

Payment    Approved     Date     

Pay      On      

Date  Paid   Check    No 


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220 


BOOKKEEPING,   THEORY  AND   PRACTICE 


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BUSINESS    FORMS    AND    PAPERS 


221 


Form  No.  6 
Purchase  Invoice  Covering  Merchandise  Purchased 

See  Transaction  No.  7 


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222  BOOKKEEPING,   THEORY  AND   PRACTICE 


Form  No.  7 
Shipping  Ticket 


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Priced  bir Checked  hv 


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Registered 


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Our  Order  Mg, 


Date 


Deecrintinr^ 


Price 


KarKc  aad  KUBberr 


Freight 


Amount 


BUSINESS    FORMS    AND     PAPERS 


223 


Form  No.  8 
Sales  Invoice 


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BOOKKEEPING,   THEORY   AND   PRACTICE 


Form  No.  p 
Examples  of  Indorsements 


Blank  Indorsement: 


Special  Indorsement: 


Qualified  Indorsement 


Restrictive  Indorsement 


Waiving  conditions: 


A.  Reid 

Pay  to  order  of  Wall   St. 
Trust  Co. 

A.  Reid 


Without  recourse 


A.  Reid 


or 


Pay  to  Wall  St.  Trust  Co. 
without  recourse 

A.  Reid 


Pay  to  Wall  St.  Trust  Co. 
for  collection 

A.  Reid 


Waiving  protest 


A.  Reid 


or 


Pay  to  Wall  St.  Trust  Co., 
waiving  protest 

A.  Reid 


BUSINESS     FORMS    AND     PAPERS 


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BUSINESS     FORMS    AND     PAPERS 


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BUSINESS     FORMS     AND     PAPERS 


229 


Form  No.  14 

Statement  of  Account 

Periodically,  but  usually  at  the  end  of  each  month,  it  is  the 
practice  in  business  to  send  to  each  customer  a  statement  of 
account  showing  the  balance  due. 

The  statement  may  show  only  the  unpaid  invoices  as  follows : 


STATEMENT 


FOLJO- 


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/i<^^^.    J/    iOI  - 


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TERMS 


5!L3^. 


230 


BOOKKEEPING,   THEORY  AND   PRACTICE 


Or,  it  may  begin  with  the  balance  on  the  preceding  statement 
and  show  all  the  debits  and  credits  made  in  the  account  during 
the  period. 

Porm  No.  i^ 
Statement  of  Account 


STATEMENT 


FOUO. 


M 


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J  I      101    • 


C/aJ^     (JcK£,sM^a 


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Date  Due 


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D420 
Rosenkampff 


Bookkeeping • • 


E722 


END  OF 
TITLE 


